Concavity of utility,concavity of welfare,and redistribution of income

The marginal social value of income redistribution is understood to depend on both the concavity of individuals’ utility functions and the concavity of the social welfare function. In the pertinent literatures, notably on optimal income taxation and on normative inequality measurement, it seems to be accepted that the role of these two sources of concavity is symmetric with regard to the social concern about inequality in the distribution of income. Direct examination of the question, however, reveals that this is not the case. Concavity of utility has a simple, direct effect on the marginal social value of redistribution, as might be expected, whereas concavity of the social welfare function has a more subtle influence, one that in some cases may not be very significant. The implications of this difference are examined for some standard forms of utility and welfare functions, including particular versions that appear in the optimal income taxation literature.     

Mixed Duopoly,Merger and Multiproduct Firms

The literature on mergers has extensively analyzed the decision to merge by private firms, but it has not considered the decision to merge by private and public firms. We assume that when a private firm and a public firm merge (or when one of them acquires the other), they set up a multiproduct firm in which the government owns an exogenous percentage stake. In this framework, we show that the decision to merge by firms depends on the degree to which goods are substitutes and on the percentage of the shares owned by the government in the multiproduct firm.     

Prudent expectations equilibrium in economies with uncertain delivery

In an economy with private information, we introduce the notion of objects of choice as lists of bundles out of which the market selects one for delivery. This leads to an extension of the model of Arrow–Debreu that is used to study trade ex ante with private state verification. Under the assumption that agents are prudent, equilibrium is characterized by the fact that agents consume bundles with the same utility in states that they do not distinguish. This is a weaker condition than the restriction of equal consumption imposed by Radner (Econometrica 36(1), 31–58, 1968), therefore, some no trade situations are avoided and the efficiency of trade increases.     

Pacifying monogamy

This paper proposes a theory of institutionally imposed monogamy. In a society where many women are allocated to the elite, there are high returns for the non-elite men to rebel. Monogamy, or “constrained” polygyny, can pacify non-elite men, and thus serve the elite’s reproductive interests. The more unequal is the society, the stricter constraints the elite want to impose on themselves. This suggests how monogamy might have arisen in response to rising class cleavages, e.g., in the wake of the introduction of agriculture. Another result is that, if the elite can write a law that commits not only themselves but also any group that would come to replace them in a rebellion, then polygyny will be more constrained than if they cannot. We speculate that the Church in Europe may have facilitated the imposition of such binding constraints.     

Does European development have Roman roots? Evidence from the German Limes

This paper contributes to the understanding of the long-run consequences of Roman rule on economic development. In ancient times, the area of contemporary Germany was divided into a Roman and a non-Roman part. The study uses this division to test whether the formerly Roman part of Germany are more developed than the non-Roman part. This is done using the Limes Germanicus wall as geographical discontinuity in a regression discontinuity design framework. The results indicate that economic development—as measured by luminosity—is indeed significantly and robustly larger in the formerly Roman part of Germany. The study identifies the persistence of the Roman road network until the present as an important factor causing this developmental advantage of the formerly Roman part of Germany both by fostering city growth and by allowing for a denser road network.     

Adverse selection problems without the Spence-Mirrlees condition

This paper studies a class of one-dimensional screening problems where the agent's utility function does not satisfy the Spence-Mirrlees condition (SMC). The strength of the SMC for hidden information problems is to provide a full characterization of implementable contracts using only the local incentive compatibility (IC) constraints. These constraints are equivalent to the monotonicity of the decision variable with respect to the agent's unobservable one-dimensional parameter. When the SMC is violated the local IC constraints are no longer sufficient for implementability and additional (global) IC constraints have to be taken into account. In particular, implementable decisions may not be monotonic and discretely pooled types must have the same marginal utility of the decision (or equivalently, get the same marginal tariff). Moreover, at the optimal decision, the principal must preserve the same trade-off between rent extraction and allocative distortion measured in the agent's marginal rent unit. In a specific setting where non-monotone contracts may be optimal we fully characterize the solution.     

Searching for the sunk cost fallacy

We seek to isolate in the laboratory factors that encourage and discourage the sunk cost fallacy. Subjects play a computer game in which they decide whether to keep digging for treasure on an island or to sink a cost (which will turn out to be either high or low) to move to another island. The research hypothesis is that subjects will stay longer on islands that were more costly to find. Eleven treatment variables are considered, e.g. alternative visual displays, whether the treasure value of an island is shown on arrival or discovered by trial and error, and alternative parameters for sunk costs. The data reveal a surprisingly small sunk cost effect that is generally insensitive to the proposed psychological drivers. Electronic Supplementary Material Supplementary material is available in the online version of this article at . Jel Classification C91, D11     

State prices,liquidity, and default

We show, in a monetary exchange economy, that asset prices in a complete markets general equilibrium are a function of the supply of liquidity by the Central Bank, through its effect on default and interest rates. Two agents trade goods and nominal assets to smooth consumption across periods and future states, in the presence of cash-in-advance financing costs that have effects on real allocations. We show that higher spot interest rates reduce trade and as a result increase state prices. Hence, states of nature with higher interest rates are also states of nature with higher risk-neutral probabilities. This result, which cannot be found in a Lucas-type representative agent model, implies that the yield curve is upward sloping in equilibrium, even when short-term interest rates are fairly stable and the variance of the (macroeconomic) stochastic discount factor is 0. The risk-premium in the term structure is, therefore, a monetary-cost risk premium.     

“Remembrance of things past”: Gordon Tullock,the man and the bioeconomist

My tribute paper on Gordon Tullock (1922–2014) provides some memorable stories of Tullock as a person and as a founder of bioeconomics. I include my speech, “Toast and roast: Gordon Tullock,” delivered on the occasion of Tullock’s 80th birthday; also the same “Toast and roast....,” written in the form of a poem, “Ode to Gordon Tullock.” I also discuss Tullock’s contributions to bioeconomics. In a concluding section, I recall a couple of my poignant memories of Gordon Tullock.     

Towards a New Austrian Macroeconomics

Austrian macroeconomists of the interwar period saw the economy as a complex adaptive system, in which macroeconomic variables emerge from the interaction between millions of purposefully acting agents. Recent advances in computation technology allow us to build empirically salient synthetic economies in silico, and thereby formalize many Austrian insights. We present a workhorse model with firms on an input-output network. Macroeconomic variables evolve through the interaction between micro-economic decisions. We use the model to explain an effect of monetary shocks on the price distribution and provide a sketch of other potential applications.