Reply to U. Ebert's comment on “the implicit welfare weights used when maximizing aggregate surplus”

In reply to the comments made by U. Ebert, it is argued that the sum of individual equivalent variations is a meaningful notion, independent of cardinal properties of the individuals' utility functions. Moreover, the notion is also central in traditional cost-benefit analysis.     

On measurability and comparability: Comment on Pauwels's “the implicit welfare weights used when maximizing aggregate surplus”

The note demonstrates that the unweighted sum of the Hicksian equivalent variations is not a reasonable welfare indicator if consumers have different wages. It recommends the unweighted sum of the individual money metrics, all evaluated at thesame reference pricesand reference wage. For this measure the comparability and necessary measurability of utility functions and welfare changes can be guaranteed. In contrast to Pauwels's measure the indicator proposed possesses the properties one expects.     

An alternative approach to aggregate surplus analysis

This paper suggests a dual to the many-person applied welfare economics problem with constraints on lymp-sum redistribution. The dual has the property of minimizing an aggregator function over individual income transfers. The properties of the aggregator are dependent upon the resource costs of redistribution and not upon the distributional preferences embodied in the social welfare function. An interpretation of the dual problem in terms of consumer surplus is offered.     

On the growth and welfare maximizing allocation of public investment

In this paper we present an endogenous growth model to analyze the growth maximizing allocation of public investment among N different types of public capital. Using this general model of public capital formation, we analyze the stability of the long-run equilibrium and we derive the growth-maximizing values of the shares of public investment allocated to the different types of public capital, as well as the growth-maximizing tax rate (amount of total public investment as a share of GDP). The empirical implication of the model is that both the effects of the shares of public investment and the tax rate on the long-run growth rate are non-linear, following an inverse U-shaped pattern. Our analysis is completed by showing that the growth-maximizing shares of public investment and the growth-maximizing tax rate also maximize welfare in the decentralized economy.     

Consumer surplus bias and the welfare effects of price discrimination

Journal of Regulatory Economics - This paper examines the incentives for efficient pricing mechanism in markets with non-convexities. The wholesale electricity market is a prominent example....     

Estimating aggregate autoregressive processes when only macro data are available

The aggregation of individual random AR(1) models generally leads to an AR(∞$\infty$) process. We provide two consistent estimators of aggregate dynamics based on either a parametric regression or a minimum distance approach for use when only macro data are available. Notably, both estimators allow us to recover some moments of the cross-sectional distribution of the autoregressive parameter. Both estimators perform very well in our Monte-Carlo experiment, even with finite samples.     

Optimal use of correlated information in mechanism design when full surplus extraction may be impossible

We study the mechanism design problem when the principal can condition the agent's transfers on the realization of ex post signals that are correlated with the agent's types. Crémer and McLean [Econometrica 53(1985) 345-361; 56(1988) 1247-1257], McAfee and Reny [Econometrica 60(2)(1992) 395-421], and Riordan and Sappington [J. Econ. Theory, 45(1988) 189-199] studied situations where the signals are such that full surplus can be extracted from every agent type. We study optimal utilization of the signals when there are fewer signals than types and the Riordan and Sappington conditions do not always hold. For some special cases, we show the level of surplus that can be extracted, and identify the agent types who obtain rent.     

Measuring efficiency when competitive prices aggregate differences in product quality and risk

In perfectly competitive markets with homogenous goods, prices aggregate inputs and outputs into a money metric that allows production plans and, hence, firms to be ranked by their profitability. Standard techniques of efficiency measurement use this metric to estimate cost and profit frontiers that identify “best-practice” production, conditioned on these exogenous prices. However, when prices vary due to differences among firms in the quality of outputs and inputs and in how asymmetric informational problems are resolved, both quality and the production of information can be decision variables of the firm, and prices will have endogenous components linked to production decisions. For example, in banking, prices of financial inputs and outputs are linked to credit quality and, hence, to risk and, thus, aggregate both inputs and outputs and their risk characteristics as well as reflect how informational asymmetries in credit markets are ameliorated. This paper argues that these cases pose two serious problems for the standard techniques of efficiency measurement: (1) they underestimate inefficiency because, in conditioning on prices, they fail to account for the effects of suboptimal pricing strategies on profitability; and (2) in ignoring how production plans and pricing strategies affect market-priced risk, the standard techniques neglect the effects of different pricing strategies on the discount rate, on expected profit and, hence, on market value. Two alternative techniques that do not condition their frontiers on prices and that account for risk are described to show how they measure the efficiency of different pricing strategies as well as production plans. These two alternative models for measuring efficiency are employed to study how differences in pricing strategies affect the efficiency and market value of highest-level bank holding companies in the United States in 1994.     

The effects of tax reform on labor supply, tax revenue and welfare when tax avoidance matters

We examine how tax avoidance in the form of trade in well-functioning asset markets affects the study of labor supply. We discuss the implications for tax policy analysis, and we show that a failure to account for avoidance responses may lead to huge errors when analyzing how tax reform affects labor supply, tax revenue and the welfare cost of taxation. Our model may explain a number of otherwise hard to understand dimensions of taxpayer response.     

On the disaggregation of excess demand functions when prices and aggregate income vary independently

Under the assumption that prices and aggregate income can vary independently and that the income distribution scheme is known and homogeneous of degree 1 in prices and aggregate income, I raise the question of the restrictions on aggregate excess demand behavior implied by the postulate of rationality of individual agents. If the number of agents is at least as high as the number of commodities, aggregate excess demand need not satisfy, at a point, any restrictions other than homogeneity of degree 0 and Walras' law. Furthermore, if the number of agents, m, is less than the number of commodities, l, aggregate excess demand can be locally arbitrary when projected on an m-dimensional subspace of the commodity space.     

国库现金管理与国库资金余额投资运作构想

对国库资金余额进行投资运作使其保值增值,已成为市场经济国家的通行做法,也是构建我国公共财政、建立现代国库制度的客观要求。本文结合我国金融市场特点,选取了四种金融工具作为国库余额资金的投资对象,对每种金融工具的安全性、流动性和收益性作了详细的分析与比较;然后,分析国库余额资金运作在当前所面临的法律环境与制度约束;最后,运用四种金融工具对国库余额资金运作进行投资模拟组合,以期为相关部门提供决策参考。     

The corn model, gluts and surplus value

The controversy over Ricardo's corn model has focused on theinterpretation of his early writings. Here, Ricardo's lateruse of a corn model example in his dispute with Malthus overgluts is discussed. Malthus's own use of a corn model tablein attempting to justify his use of a labour commanded measureof value is analysed; it is shown that he calculates what Marxwas to describe as surplus value from the physical conditionsof production and the real wage.     

The ministry as the maximizing unit in Soviet industry

Microanalysis of Soviet industry has customarily chosen the enterprise as unit of analysis. This paper recommends that choice of the unit be made according to the criterion of the lowest hierarchical unit customarily receiving plans that hold unchanged for the entire planning period. It experiments with use of the ministry as unit of analysis. Conclusions from statistical data are (1) absence of “taut” planning during normal years of the 1969–1977 period, of with the situation during 1949–1956; (2) absence of any ratchet effect in planning during either period, with greater statistical confidence in this result for the 1969–1977 period.     

The welfare costs of corruption

Corruption has been shown to affect a variety of economic indicators, especially GDP per capita. However, as GDP is not a genuine indicator of welfare, it may reflect the welfare costs of corruption only in an incomplete way. This article uses self-rated subjective well-being as an empirical approximation to general welfare and shows that cross-national welfare?–?operationalized in this way?–?is affected by corruption not only indirectly through GDP, but also directly through nonmaterial factors. This article estimates the size of these effects as well as their monetary equivalent. The direct effect?–?not previously investigated in the corruption literature?–?is found to be substantially larger than the indirect effect.     

Consumption,welfare, and stochastic population dynamics when technology shocks are (Un)tied

The impact of uncertainty on consumption and welfare seems obvious; because of the precautionary saving motive, higher uncertainty reduces consumption, and subsequently, deteriorates welfare. Recent several studies, however, find that this intuitive narrative is not necessarily true. This paper provides the analytical underpinnings for this. In the absence of technological progress, I find that the larger demographic shocks always reduce consumption, but improve the welfare of households. Moreover, when demographic shocks are negatively tied to technology shocks, there emerges an inverted-U relationship between the size of two shocks and consumption, and a U-shaped relationship between the size of two shocks and household welfare. These results are all characterized analytically in the framework of the stochastic two-sector growth model featuring the correlated Brownian motion process. The findings suggest that demographic policies should not be implemented with no reference to the state of technology.