Resource-monotonic allocation when preferences are single-peaked

Summary. We consider the problem of allocating an infinitely divisible commodity among a group of agents with single-peaked preferences. Thomson (1994a), S?nmez (1994), and Moulin (1999) introduce three different resource-monotonicity conditions. In each characterization they derive, the axioms are independent. Under Pareto-optimality, the three resource-monotonicity conditions are equivalent. We investigate whether the interchange of these conditions still yields a valid characterization, and when the characterization still holds, whether it is a tight result or not. We strengthen each of the results, that is either the used resource-monotonicity condition can be replaced by a weaker one, or by using another resource-monotonicity condition, the result is not tight. Our main result is that when at least three agents are present, the class of fixed-path rationing methods is characterized by weak one-sided resource-monotonicity, strategy-proofness, and consistency. Received: April 24, 2000; revised version: April 10, 2001     

Efficiency and equilibrium when preferences are time-inconsistent

We consider an exchange economy with time-inconsistent consumers whose preferences are additively separable. If consumers have identical discount factors, then allocations that are Pareto efficient at the initial date are also renegotiation-proof. In an economy with a sequence of markets, competitive equilibria are Pareto efficient in this sense, and for generic endowments, only if preferences are locally homothetic.     

Pareto optima and equilibria when preferences are incompletely known

An exchange economy in which agents have convex incomplete preferences defined by families of concave utility functions is considered. Sufficient conditions for the set of efficient allocations and equilibria to coincide with the set of efficient allocations and equilibria that result when each agent has a utility in her family are provided. Welfare theorems in an incomplete preferences framework therefore hold under these conditions and efficient allocations and equilibria are characterized by first order conditions.     

Wealth transfers and the role of collateral when lifetimes are uncertain

We develop a general equilibrium model of wealth transfers in the presence of uncertain lifetimes and default. Without introducing exogenous debt constraints, agents are allowed to make collateral-backed promises at any state of their life span.     

Population-monotonic solutions to the problem of fair division when preferences are single-peaked

Summary We consider the problem of fairly allocating an infinitely divisible commodity among agents with single-peaked preferences. First, we examine the implications of the requirement that a change in the population affect all agents that are present before and after the change in the same direction. We show that this requirement is met by no selection from the no-envy solution. In the face of this impossibility, we limit our attention to changes that are not so disruptive, in the following sense: if initially there is not enough to bring all agents to their satiation points, then this still is the case after the change, and if initially there is so much that agents have to be brought beyond their satiation points, then again, this remains the case. The requirement is that such changes affect all agents that are present before and after the change in the same direction. Our main result is that there is essentially only one selection from the envy-free and efficient solution satisfying this property. It is the solution known as the uniform rule.The comments of T. Yamato, T. Sönmez and two referees, and support from NSF under Grant No. 8809822 and SES 9212557, are gratefully acknowledged.     

Monetary and fiscal policy interactions in the EMU when cyclical conditions are uncertain

This paper examines economic policy interactions in the Economic and Monetary Union when the assessment of cyclical conditions in real time is surrounded by uncertainty. On the basis of a simple stylised model it shows that with a Nash-type of interaction different views about the output gap on the side of the policy players—the Council of the European Union, the European Commission and the European Central Bank—can give rise to excessive activism with policy players pushing economic variables into opposite directions. It argues that the costs of such policy conflicts can be reduced by agreeing on a common assessment of the cycle, by constraining policy variables, and/or by increasing the weight of fiscally conservative institutions. An alternative option to sidestep policy conflicts ensuing from diverging views of the cycle is to take policy decisions sequentially, as is the case in a Stackelberg-type of interaction. The paper shows that for a given misperception of the cycle, the impact on the policy instruments and on output and inflation are generally smaller in the Stackelberg equilibrium as compared to a Nash outcome. Alternative allocations of roles—that is leader versus follower—are discussed and assessed.

Optimal use of futures markets when input and output prices are uncertain

The purpose of this paper is to extend the analysis of the use of futures markets by a competitive firm facing an uncertain market price for its output to the case where both input and output prices are uncertain.     

Strategy-proof allocation mechanisms for pure public goods economies when preferences are monotonic

Summary. A fundamental problem in public finance is that of allocating a␣given budget to financing the provision of public goods (education, transportation, police, etc.). In this paper it is established that when␣admissible preferences are those representable by continuous and increasing utility functions, then strategy-proof allocation mechanisms whose (undominated) range contains three or more outcomes are dictatorial on the set of profiles of strictly increasing utility functions, a dense subset of the domain in the topologies commonly used in this context. If admissible utility functions are further restricted to be strictly increasing, or if mechanisms are required to be non-wasteful, then strategy-profness leads to (full) dictatorship. Received: August 14, 1995; revised version: September 25, 1997     

Preservation and exogenous uncertain future preferences

Summary. We extend the Beltratti, Chichilnisky and Heal's (1993) and (1998) continuous-time stochastic dynamic framework to analyze the optimal depletion of an asset whose consumption is irreversible, in the face of uncertainty about future preferences. Their model is rather general and so the results are general qualitative theorems. We show that in some interesting cases it is possible to solve their model analytically. The cases involve constant elasticity utility functions and the assumption of a Poisson process for the evolution of preferences. Received: September 13, 1999; revised version: November 23, 1999     

Intergenerational transmission of preferences

We propose a perfect empathy model of cultural transmission to capture the evolution of preferences in a population. Unlike existing imperfect empathy models, focusing on stable interior equilibria, we demonstrate that a corner outcome will eventuate. However, which corner outcome emerges is unknown, and depends on the interplay of “history” and “expectations”.     

On the intergenerational transmission of preferences

Recent contributions in economics have argued for a re-introduction of preference-based approaches to economic behavior and have called for an empirical investigation of preferences in order to overcome the prevalent skepticism against such explanations within the discipline. The present paper contributes to this discussion by assessing the extent, specificity, and malleability of preference transmission from parents to their children, and thus provides evidence for the clustering of preferences along family lines. Using data on eight activity choices from the British Household Panel Survey, we find strong (and positive) correlations between preferences of parents and their adult children. These correlations are found to be robust to a wide number of robustness checks but to vary considerably across activities, suggesting that parents may have more influence over some preferences than over others. Further investigations also show that this influence is surprisingly robust to a wide number of potentially intervening factors.     

Monetary policy with uncertain central bank preferences

This paper considers monetary policy when policy makers’ preferences are private information. I show that in the first period of a two-period term, all policy makers but the least inflation averse inflate less - but respond more to shocks - than if there were no private information. Moderately inflation-averse policy makers may reduce their inflation most. A tendency toward increased conservatism in their second period increases inflation in the first. With T<∞ period terms, inflation depends solely on the policy maker's time left in office. With unchanging preferences and no discounting, inflation is lower the longer he has left.     

Competitive equilibrium when preferences change over time

Summary. We show the existence of a competitive equilibrium in an economy with many consumers whose preferences may change over time. The demand correspondence of an individual consumer is determined by the set of subgame-perfect equilibrium outcomes in his intrapersonal game. For additively separable preferences with concave period utility functions that are unbounded above, this demand correspondence will satisfy the usual boundary conditions. Whenever consumers can recall their own mixed actions, this correspondence is convex-valued. This ensures the existence of a symmetric competitive equilibrium.Received: 29 July 2004, Revised: 17 November 2004, JEL Classification Numbers: D51, D91, C73. Correspondence to: Thomas MariottiWe thank Michele Piccione for useful comments and suggestions. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.     

Resisting economic integration when industry location is uncertain

This paper analyses the political determination of transportation costs in a new economic geography model. In a benchmark case with certainty about where agglomeration takes place, a majority of voters favour economic integration and the resulting equilibrium is an industrialised core and a de-industrialised periphery. Allowing for uncertainty, a high level of trade costs may win the election and maintain the initial distribution of industry. The reason is that a coalition of risk-averse immobile factors of production votes for the status quo due to uncertainty about which region will attract industry if economic integration is pursued. Finally, the standard view that agglomeration is unambiguously beneficial to residents in the industrial centre is challenged by introducing costs of undertaking economic integration.     

Optimal annuitization, uncertain survival probabilities, and maxmin preferences

We consider a life-cycle model with bequest motives, and assume that the individual does not know his/her survival probability and has maxmin utility preferences; we show that it is optimal not to annuitize but to purchase pure life insurance policies instead.     

Social preferences and public economics: Mechanism design when social preferences depend on incentives

Social preferences such as altruism, reciprocity, intrinsic motivation and a desire to uphold ethical norms are essential to good government, often facilitating socially desirable allocations that would be unattainable by incentives that appeal solely to self-interest. But experimental and other evidence indicates that conventional economic incentives and social preferences may be either complements or substitutes, explicit incentives crowding in or crowding out social preferences. We investigate the design of optimal incentives to contribute to a public good under these effects would make either more or less use of explicit incentives, by comparison to a naive planner who assumes they are absent.     

Optimal redistributive taxation when government's and agents' preferences differ

Paternalism, merit goods and specific egalitarianism are concepts we sometimes meet in the literature. The thing in common is that the policy maker does not fully respect the consumer sovereignty principle and designs policies according to some other criterion than individuals' preferences. Using the self-selection approach to tax problems developed by Stiglitz [Stiglitz, J.E., 1982. Self-selection and Pareto-efficient taxation. Journal of Public Economics 17, 213–240] and Stern [Stern, N.H., 1982. Optimum taxation with errors in administration. Journal of Public Economics 17, 181–211], the paper provides a characterization of the properties of an optimal redistributive mixed tax scheme in the general case when the government evaluates individuals' well-being using a different utility function than the one maximized by private agents.     

Strategic take-back programs when consumers have heterogeneous environmental preferences

We look at the strategic introduction of take-back programs (TBPs) which offer consumers a discount on their next purchase (reward) when they drop off previous purchases. In a Hotelling duopoly, consumers are heterogeneous not only in terms of their location on the Hotelling line but also in terms of their recycling preferences. Firms introduce TBPs to obtain a market share advantage (reward effect) and/or to recover the intrinsic value of the recycled units (recycling effect); their choice of the optimal reward balances these two effects: for instance, a firm might be willing to introduce a TBP, even if this means losing money on each recycled unit, in order to prevent the competitor from gaining a too large market share advantage. Comparing the level of TBP uptake at the market equilibrium to the one that maximizes social welfare, we show that a lower or higher TBP uptake can be socially desirable, depending, among other, on the weight that is given to the environmental benefits of TBPs. Several extended producer responsibility policies are discussed in terms of their potential to encourage TBP uptake and their overall impact on social welfare.     

Horizontal vs. vertical transmission of fertility preferences

I study the cultural transmission of fertility preferences among second-generation immigrant women observed in U.S. Censuses from 1910 to 1970. As hypothesized by Bisin and Verdier (2001), the transmission of preferences can be “vertical” or “horizontal”. Using a unique source documenting the variation in fertility behavior in Europe before and after the first demographic transition (1830–1970), I unpack the influence of parents (measured by source-country fertility at the time of departure from Europe) versus the influence of peers from the same source-country (measured by fertility of the same-age cohorts living in the source-country and transmitted by same-age recent immigrants). I find that the transmission mechanism is crucially affected by the number of foreign-born immigrant peers living in the same MSA. On one hand, the “vertical” channel of transmission is stronger in places where there are few newly arrived foreign-born immigrant couples from the same source-countries. On the other hand, the “horizontal” channel prevails in MSA’s densely populated by recently arrived immigrants from the same source-countries of second-generation ones.