The optimal use of fines and imprisonment

This paper examines the use of fines and imprisonment to deter individuals from engaging in harmful activities. These sanctions are analyzed separately as well as together, first for identical risk-neutral individuals and then for two groups of risk-neutral individuals who differ by wealth. When fines are used alone and individuals are identical, the optimal fine and probability of apprehension are such that there is some ‘underdeterrence’. If individuals differ by wealth, then the optimal fine for the high wealth group exceeds the fine for the low wealth group. When imprisonment is used alone and individuals are identical, the optimal imprisonment term and probability may be such that there is either underdeterrence or overdeterrence. If individuals differ by wealth, the optimal imprisonment term for the high wealth group may be longer or shorter than the term for the low wealth group. When fines and imprisonment are used together, it is desirable to use the fine to its maximum feasible extent before possibly supplementing it with an imprisonment term. The effects of risk aversion of these results are also discussed.     

Direct sale of information when precision is unobservable

Abstract.  This paper studies the incentives of an information seller to provide precise information when precision is not observable and investors with rational expectations can extract information from the equilibrium asset price. I show that the seller can verify her precision by employing a non‐linear contract. I derive the equilibrium fee for information as a function of the seller's incentives, the sales volume, and buyers' trading intensity. I also analyse the implications of allowing the seller to trade on her own account for truthfulness and precision choice. JEL Classification: G11, G14, D42     

Inheritance and inequality when wealth enters the utility function

The distribution of wealth and its dynamic development are analyzed within a non-overlapping generations model. All individuals have identical preferences and abilities. Wealth is represented by land, which is available in fixed aggregate supply. Utility depends on a perishable consumption good and—due to a bequest and/or a prestige motive—in addition on land owned. Two configurations can occur as long run equilbrium: equality and two class dichotomy. All Two Class Equilibria are unstable. The Equality Equilibrium is unstable if and only if land is sufficiently productive. In the case of instability there is a process towards maximal concentration of wealth.For helpful discussions I am indebted to G. Clemenz, S. Krasa, and M. Winkler.     

On the undesirability of commodity taxation even when income taxation is not optimal

An important result due to Atkinson and Stiglitz (1976) [Atkinson, A.B., Stiglitz, J.E., 1976. The design of tax structure: Direct versus indirect taxation. Journal of Public Economics 6, 55–75.] is that differential commodity taxation is not optimal in the presence of an optimal nonlinear income tax (given weak separability of utility between labor and all consumption goods). This article demonstrates that this conclusion holds regardless of whether the income tax is optimal. In particular, given any commodity tax and income tax system, differential commodity taxation can be eliminated in a manner that results in a Pareto improvement. Also, differential commodity taxation can be proportionally reduced so as to generate a Pareto improvement. In addition, for commodity tax reforms that neither eliminate nor proportionally reduce differential taxation, a simple efficiency condition is offered for determining whether a Pareto improvement is possible.     

Periodic and chaotic programs of optimal intertemporal allocation in an aggregative model with wealth effects

Summary We examine a discrete-time aggregative model of discounted dynamic optimization where the felicity function depends on both consumption and capital stock. The need for studying such models has been stressed in the theory of optimal growth and also in the economics of natural resources. We identify conditions under which the optimal program is monotone. In our framework, the optimal program can exhibit cyclic behavior for all discount factors close to one. We also present an example to show that our model can exhibit optimal behavior which is chaotic in both topological and ergodic senses.We would like to thank V. Bala, J. Benhabib, P. Dasgupta, R. Day, L. W. McKenzie, K. Nishimura, S. Roy, and a referee of this journal for comments on earlier versions of this paper. Research support from the National Science Foundation is gratefully acknowledged.     

The trajectory of wealth in retirement

In this paper, we develop a measure of household resources that converts total financial and non-financial assets, plus annuity-like assets (mainly, Social Security and defined-benefit pensions) into an expected annual amount of wealth per person in retirement. We use this measure, which we call “annualized comprehensive wealth,” to investigate spend-down behavior among a panel of older households in the Health and Retirement Study (HRS) from 1998 to 2006. Our analysis indicates that for most retired households, comprehensive wealth balances decline much more slowly than their remaining life expectancies, so that the predominate trend is for real annualized wealth to rise significantly with age over the course of retirement. Comparing the estimated age profiles for annualized wealth with profiles simulated from several different life-cycle models, we find that a model that takes into account uncertain longevity, random medical expenses, and intended bequests lines up best with the broad patterns of rising annualized wealth in the HRS.     

The nature and role of monetary policy when money is endogenous

This paper considers the nature and role of monetary policywhen money is modelled as credit money endogenously createdwithin the private sector. There are currently two schools ofthought that view money as endogenous: one has been labelledthe ‘new consensus’ in macroeconomics, and the otheris the Keynesian endogenous (bank) money approach. The paperfirst explores the analysis of monetary policy in the ‘newconsensus’ macroeconomic model, followed by an examinationof the effectiveness of monetary policy in that analysis. TheKeynesian view of endogenous money is discussed, and the rolefor monetary policy in a Keynesian endogenous monetary policyanalysis is considered, including discussion of the objectivesand instruments of monetary policy.     

Environmental amenities and optimal agricultural land use: The case of Israel

This paper evaluates the effectiveness of changing land allocation among crops as a mechanism for increasing net-social benefits, where production profits and amenity values are augmented. A positive mathematical programming model is calibrated and applied to 43 regions in the northern part of Israel, using a crop-discriminating amenity-value function. Changes in land allocation increase net-social benefits by 2.4% nationwide and by up to 15% on the regional level, where in some regions the net-social-benefits-increase/profit-loss ratio exceeds 20. Therefore, the results indicate that a policy encouraging amenity-enhancement of agricultural land use is warranted, provided that it is implemented on a regional scale, rather than as a comprehensive nationwide-enforced program.     

The value of commitment in contests and tournaments when observation is costly

We study the value of commitment in sequential contests when the follower faces small costs to observe the leader's effort. We show that the value of commitment vanishes entirely in this class of games. By contrast, in sequential tournaments—games where, at a cost, the follower can observe the effectiveness of the leader's effort—the value of commitment is preserved completely provided that the observation costs are sufficiently small.     

The growth of relative wealth and the Kelly criterion

We propose an evolutionary framework for optimal portfolio growth theory in which investors subject to environmental pressures allocate their wealth between two assets. By considering both absolute wealth and relative wealth between investors, we show that different investor behaviors survive in different environments. When investors maximize their relative wealth, the Kelly criterion is optimal only under certain conditions, which are identified. The initial relative wealth plays a critical role in determining the deviation of optimal behavior from the Kelly criterion regardless of whether the investor is myopic across a single time period or maximizing wealth over an infinite horizon. We relate these results to population genetics, and discuss testable consequences of these findings using experimental evolution.     

The relationship between wealth or income and time preference is empirical, not apodictic: a critique of Rothbard and Hoppe

There is no doubt that when income or wealth increases, impatience for present goods declines. When time preference for the present falls, interest rates decline as well. But is this phenomenon a necessary condition of human action as Rothbard and Hoppe contend? This is widely thought to be true when a man is on the very verge of death. There is an aphorism according to which “a drowning man will grasp even at the blade of a sword.” In this view, someone who is starving will not postpone the consumption of food for tomorrow that is necessary to keep him alive today. But we disagree. And what is the situation under more ordinary circumstances far removed from starvation? We argue in this paper that, contrary to Rothbard and Hoppe, under these conditions it is a reliable but only a broad empirical generalization that time preferences and interest rates are inversely related to wealth or income, it is not a matter of praxeology.     

小议我国股市“财富效应”及其传导机制

本文阐明了财富效应对经济增长的作用机制，并针对财富效应传导机制，从股市规模、投资者结构及收益分配结构、股市持续变动趋势、“挤出效应”等方面分析我国股市财富效应尚很微弱的原因，由此对我国股市的健康发展给出了政策建议。     

Corruption and the public display of wealth

We study an agent–client model of corruption, in which potential corruptors are uncertain about the probability with which officials are subjected to an audit, either high or low. We characterize a signaling equilibrium, in which officials who are less likely to be audited engage in public conspicuous consumption, whereas those who are more likely to be audited do not. In this equilibrium, officials are better off than in the equilibria without conspicuous consumption. The signaling equilibrium exists if the officials' bargaining power vis‐à‐vis potential corruptors is sufficiently high, which implies that corruption can be curbed by creating competition among officials.