The measurement of Poverty: An experimental questionnaire investigation

We re-examine some of the standard axioms used in the literature on poverty measurement. Using a sample of 486 students from Australia, Israel and the USA we investigate the extent to which individuals' perceptions of poverty correspond to the axioms. We find that axioms such as anonymity, growth of the poor and monotonicity are resonably well supported. However there is very little support for the focus axiom and the principle of transfers was the least well supported of the eight specific criteria for poverty measurement that we examined.     

An axiomatic characterization of the Theil inequality ordering

We axiomatically characterize the Theil ordering of income inequality. In addition to the uncontroversial axioms of anonymity, homogeneity, replication invariance, strong directedness, and a standard continuity property, we appeal to both an independence and a decomposability axioms. These two axioms are ordinal implications of Theil decomposability, the central axiom in previous characterizations of the Theil index. To the best of our knowledge, the present is the first fully ordinal characterization of this index.     

Sustainable markets with short sales

Market objectives can conflict with long-term goals. Behind the conflict is the impatience axiom introduced by T. Koopmans to describe choices over time. The conflict is resolved here by introducing a new concept, sustainable markets. These differ from Arrow-Debreu markets in that traders have sustainable preferences and no bounds on short sales. Sustainable preferences are sensitive to the basic needs of the present without sacrificing the needs of future generations and embody the essence of sustainable development (Chichilnisky in Soc Choice Welf 13(2):231–257, 1996a; Res Energy Econ 73(4):467–491, 1996b). Theorems 1 and 2 show that limited arbitrage is a necessary and sufficient condition describing diversity and ensuring the existence of a sustainable market equilibrium where the invisible hand delivers sustainable as well as efficient solutions (Chichilnisky in Econ Theory 95:79–108, 1995; Chichilnisky and Heal in Econ Theory 12:163–176, 1998). In sustainable markets prices have a new role: they reflect both the value of instantaneous consumption and the value of the long-run future. The latter are connected to the independence of the axiom of choice at the foundations of mathematics (Godel 1940).     

Valuing life: Experimental evidence using sensitivity to rare events

Global environmental phenomena like climate change, major extinction events or flutype pandemics can have catastrophic consequences. By properly assessing the outcomes involved – especially those concerning human life – economic theory of choice under uncertainty is expected to help people take the best decision. However, the widely used expected utility theory values life in terms of the low probability of death someone would be willing to accept in order to receive extra payment. Common sense and experimental evidence refute this way of valuing life, and here we provide experimental evidence of people's unwillingness to accept a low probability of death, contrary to expected utility predictions. This work uses new axioms of choice defined by Chichilnisky (2000), especially an axiom that allows extreme responses to extreme events, and the choice criterion that they imply. The implied decision criteria are a combination of expected utility with extreme responses, and seem more consistent with observations.     

Subjective ambiguity, expected utility and Choquet expected utility

Summary. Using the Savage set up, this paper provides a simple axiomatization of the Choquet Expected Utility model where the capacity is an inner measure. Two attractive features of the model are its specificity and the transparency of its axioms. The key axiom states that the decision-maker uses unambiguous acts to approximate ambiguous ones. In addition, the notion of ‘ambiguity’ is subjective and derived from preferences. Received: March 23, 2000; revised version: April 24, 2001     

Knowledge and economic behaviour. A constructivist approach

The knowledge of human knowledge claims a place of its own in economics. Beyond the walls of our discipline, spectacular progress is taking place in the field of empirical research into human knowledge -the so-called “cognitive sciences”. In the light of such advances, the old and new classicals' axiom that nothing scientific can be said beyond the axioms of substantive rationality now looks very much like the protective belt of a degenerating programme. On the other hand, criticisms and alternative programmes will hardly be effective so long as their arguments are purely negative or are drawn from armchair introspection. In the present study I wish to outline a pattern of human knowledge emerging from cognitive research that may be called “constructivist”, and to point out the restrictions it sets on economic analysis. It is also my argument that such a pattern is consistent with the present non- or post-Walrasian trends in economic theory, and that it may provide them with firmer cognitive foundations.     

AN ALTERNATIVE AXIOMATIZATION OF SEN'S POVERTY MEASURE

We provide an alternative axiomatization of Sen's (1976) poverty measure. We derive the measure from the general definition of a poverty measure by using a version of Sen's rank order axiom, and a substantially weaker form of his normalization axiom. These two axioms, together with a continuity axiom, lead uniquely to the measure suggested by Sen (1976).     

Infinite-horizon choice functions

We analyze infinite-horizon choice functions within the setting of a simple technology. Efficiency and time consistency are characterized by stationary consumption and inheritance functions, as well as a transversality condition. In addition, we consider the equity axioms Suppes–Sen, Pigou–Dalton, and resource monotonicity. We show that Suppes–Sen and Pigou–Dalton imply that the consumption and inheritance functions are monotone with respect to time—thus justifying sustainability—while resource monotonicity implies that the consumption and inheritance functions are monotone with respect to the resource. Examples illustrate the characterization results.     

Who Should Abate Carbon Emissions? A Note

Economists commonly believe that failure to equalize the marginal cost of carbon abatement across countries implies a loss of global efficiency. Chichilnisky and Heal [(1994), Economic Letters 44, 444] first challenged this consensus a decade ago, demonstrating that, in general, efficiency does not require equalizing marginal abatement costs. This note revisits that important debate. It provides the missing intuition behind Chichilnisky and Heal’s surprising result, explains what critical assumption gives rise to their result, and clarifies the role a social welfare function plays in their model. The implications of Chichilnisky and Heal’s result are increasingly important, given international debate over the preferential role given to developing countries in the Kyoto Protocol and the role those countries will play in future climate negotiations.     

On measuring violations of the progressive principle in income tax systems

Kakwani and Lambert (Eur J Polit Econ 14(2):369–380, 1998) state three axioms which should be respected by an equitable tax system. Using the Atkinson–Plotnick–Kakwani re-ranking indexes of taxes, tax rates, and post-tax incomes, calculated with respect to the ranking of pre-tax income distribution, they then propose a measurement system to evaluate the negative influences that axiom violations exert on the redistributive effect of taxes. In this paper, we reconsider the way Kakwani and Lambert measure violations of their second axiom, which concerns the re-ranking of tax rates. We construct a non-negative index which is strictly faithful to Kakwani and Lambert’s commands; we show that the Authors’ measure does not exactly fit the statements made in their second axiom. Both Kakwani and Lambert’s original measurement system and the modified one are then applied to Italian personal income tax in 2008. According to the modified measurement system, the average tax rate seems to play a smaller role than that suggested by the results gained using Kakwani and Lambert’s original methodology.     

Reclaim-proof allocation of indivisible objects

We study desirability axioms imposed on allocations in indivisible object allocation problems. The existing axioms in the literature are various conditions of robustness to blocking coalitions with respect to agentsʼ ex ante (individual rationality and group rationality) and ex post (Pareto efficiency) endowments. We introduce a stringent axiom that encompasses and strengthens the existing ones. An allocation is reclaim-proof if it is robust to blocking coalitions with respect to any conceivable interim endowments of agents. This is an appealing property in dynamic settings, where the assignments prescribed by an allocation to be implemented need to be made in multiple rounds rather than all in one shot. We show that an allocation is reclaim-proof if and only if it is induced by a YRMH–IGYT mechanism (introduced by Abdulkadiroğlu and Sönmez, 1999) and if and only if it is a competitive allocation.     

Revealed favorability,indirect utility,and direct utility

This paper studies the axiomatic foundations of the indirect utility function, based upon a revealed preference approach. A chain of comparisons of budgets is regarded as giving a relation on the price-income space (a revealed favorability relation) rather than a relation on the commodity space (a revealed preference relation). The weak and strong axioms of revealed favorability are introduced by analogy with the weak and strong axioms of revealed preference, and the relationship between the former two axioms is investigated. The indirect and direct utility functions are then derived on the basis of the strong axiom of revealed favorability. Neither the continuity property of the demand function nor the convex property of its range is required for the approach taken in the paper.     

Learning and sophistication in coordination games

This paper studies the role of strategic teaching in coordination games and whether changing the incentives of players to teach leads to more efficient coordination. We ran experiments where subjects played one of four coordination games in constant pairings, where the incentives to teach were varied along two dimensions—the short run cost of teaching and the long run benefit to teaching. We show which aspects of the game lead subjects to adopt long run teaching strategies, and show that subjects try to manipulate their opponent’s actions to pull them out of a situation of coordination failure. We also show that extending a model of decision making by introducing a forward-looking component helps to track teachers’ behaviour more accurately, and describes the way players behave in a more unified way across both teachers and learners.     

Comment on the Kannai-Peleg impossibility theorem for extending orders

Recent work by Y. Kannai and B. Peleg shows that two appealing axioms for extending a linear order on a set of six or more elements to a weak order on the family of non-empty subsets of that set are mutually incompatible. This comment shows that a modest restriction of their monotonicity axiom is compatible for extension with a generalization of their other axiom provided that the linear order on the basic set is a well ordering.     

Optimal Pollution Abatement Under ‘Sustainable’ and Other Social Time Preferences

This paper analyses optimal pollution abatement expenditure and the pricing of pollution under alternative social time preferences, including ‘sustainable’ preferences, defined as those that are consistent with two axioms of sustainable development introduced by Chichilnisky (Land Econ 73:467–491, 1997). These axioms state essentially that neither the welfare of present nor future generations ought to be favoured over the other in determining the socially optimal path of economic development. The method is to calibrate a modified Ramsey model of optimal global growth and saving, where pollution is generated by the global output of goods and services. Pollution in turn reduces output. The simulation results illustrate how sensitive the optimal pollution price and abatement expenditure can be over time to assumptions about the social time preference rate. They also show that ‘sustainable’ preferences impose a lower burden on future generations in terms of the pollution price and abatement expenditure. Hence there is a case for governments to make explicit their value judgments about intergenerational welfare, in the context of their notion of sustainable development, when setting target pollution abatement levels and pollution prices over time.     

THE BEHAVIOUR OF SOLUTIONS TO BARGAINING PROBLEMS ON THE BASIS OF SOLIDARITY*

The main purpose of this paper is to provide a systematic study of the solidarity‐type axioms for classical convex bargaining problems. As a consequence, we present alternative characterizations for some well‐known solutions in the literature. Instead of using the Monotonicity axiom, the paper provides characterizations of the egalitarian solution and the Kalai–Somorodinsky solution using slightly weaker versions of Nash's original IIA for convex bargaining problems with a fixed population.     

Expected utility theory from the frequentist perspective

We present an axiomatization of expected utility from the frequentist perspective. It starts with a preference relation on the set of infinite sequences with limit relative frequencies. We consider three axioms parallel to the ones for the von Neumann–Morgenstern (vN–M) expected utility theory. Limit relative frequencies correspond to probability values in lotteries in the vN–M theory. This correspondence is used to show that each of our axioms is equivalent to the corresponding vN–M axiom in the sense that the former is an exact translation of the latter. As a result, a representation theorem is established: The preference relation is represented by an average of utilities with weights given by the relative frequencies.     

On weighted Kalai–Samet solutions for non-transferable utility coalitional form games

We investigate the implications of the axiom of coalitional concavity for non-transferable utility coalitional form games. This axiom says that if the feasible set of some coalition is uncertain whereas the feasible sets of other coalitions are known, then all players in the coalition with the uncertain feasible set should (weakly) benefit from reaching a compromise before the uncertainty is resolved. By imposing this axiom, in addition to other minor axioms, we characterize the weighted Kalai–Samet [Econometrica 53 (1985) 307] solutions: these solutions coincide with the weighted egalitarian solutions on the domain of bargaining problems, and with the weighted Shapley values on the domain of transferable utility coalitional form games.     

Growth and the current account: Malaysia and Singapore

A foreign trade model is estimated for two South East Asian countries, selected because they represent two extremes as far as the current account balance is concerned—Malaysia, deficit, Singapore, surplus. The specification highlights, (a) the simultaneous interdependence of exports and import flows—a result of what Krugman [1995] denotes as the slicing up of the production process—and, (b) the impact of investment on imports as a result of productivity shocks on the current account. The estimation results point to the instability of the market for foreign exchange. Using an intertemporal framework, a methodology to derive the external long run equilibrium is applied to the estimated model. The implied constraint on domestic growth turns out to be mild. This research has been financed by the Dgicyt under grant PB94-1502, and the Junta de C. y L. under grant SA 35/97. The comments and suggestions of the editor of the journal and an anonymous referee are gratefully acknowledged. The paper has also benefited from the comments of the participants at the Fifty-First International Atlantic Economic Conference, March 13–20, 2001, Athens, Greece, and at the AEA conference on New Financial Instruments and Emerging Markets, Paris, 1998. Any possible remaining errors are the authors.     

Axiomatization of the core of assignment games

The core of assignment games is characterized by two different lists of axioms. The first list consists of Pareto optimality, consistency, pairwise monotonicity, and individual monotonicity. The second list is obtained from the first one replacing the last axiom by population monotonicity. As a corollary, individual monotonicity and population monotonicity are equivalent under the other axioms. The core is also characterized by the second list on the restricted domain in which the worth of each pair is non-negative and every reservation value is zero.