The allocation of household income to food consumption

Low-income households - those toward which various income supplement programs are aimed - not only spend a large share of their incomes on food, but exhibit a higher income elasticity of demand for food than does the rest of the population. Further, a greater proportion of the marginal income generated via welfare payments and food subsidy programs (e.g., food stamps) is devoted to food consumption than is true of wage income. These are among the major conclusions emerging from an extensive Engel Curve analysis applied to the data generated by a five-year (1968–1972) panel study of 5000 U.S. households.     

Efficient Allocations with Hidden Income and Hidden Storage

We consider an environment in which individuals receive income shocks that are unobservable to others and can privately store resources. We provide a simple characterization of the unique efficient allocation of consumption in cases in which the rate of return on storage is sufficiently high or, alternatively, in which the worst possible outcome is sufficiently dire. We show that, unlike in environments without unobservable storage, the symmetric efficient allocation of consumption is decentralizable through a competitive asset market in which individuals trade risk-free bonds among themselves.     

Inflation and globalisation: The Tawney Lecture 2022

The paper examines the causal relationships and interdependence between inflation and globalisation over centuries: in the sixteenth century, in the age of Spanish silver; then in the first age of modern globalisation from in the middle of the nineteenth century; and finally in the new globalisation that took off in the 1970s. In the latter cases, inflation was a response to a negative supply shock, and eventually generated policy decisions on economic opening. Both recent globalisations may be explained as technologically driven, and some of the most important productivity gains involved the cost of transport, but the fundamental innovations substantially pre-dated the moment at which they were economically transformative. Scarcity dramatically changes relative prices, but not the overall price level. Initially inflation became a policy solution, an attractive way of meeting the challenges of scarcity, but then its increasing costs became apparent, and more, rather than less, global integration looked like a way of reducing costs and minimising social pressure. Policy choices were involved in generating the globalised world: not only the removal of impediments to commerce, but also a consensus around a stable and internationally applicable monetary framework, whether the gold standard in the late nineteenth century or a modern inflation targeting regime in the late twentieth century.     

Self-serving Bias in Annual Report Narratives: An Empirical Analysis of the Impact of Economic Crises

Consistently, management's explanations of corporate performance in accounting narratives have been found to suffer from self-serving bias. Yet there is no unequivocal evidence as to whether this bias is the product of conscious efforts to manage the impressions of the audience or the result of unintentional cognitive biases. The present study contributes to this discussion by comparing the narratives of the letters addressed to shareholders of Europe's most highly-capitalized companies in crisis and non-crisis settings. We find that a crisis situation leads to more extensive use of self-serving bias as adverse external economic conditions are used by managers to present themselves in the best possible light. Given that the letters to shareholders are widely used for capital allocation decisions and considering the evidence that intentional self-serving behavior can be successful, our results imply that investors need to be alert to misleading explanations of performance, particularly during external crises. The International Accounting Standards Board (IASB) has formulated a practice statement proposing non-mandatory guidance on the management commentary that accompanies financial statements. Our results suggest that the quality of narrative information in annual reports is unlikely to be augmented by guidelines that encourage the discussion of corporate performance through the eyes of management.     

Competitive prices as optimal cartel prices

In a linear oligopoly model with antitrust enforcement, the optimal cartel price converges to the competitive equilibrium price. The set of sustainable cartel prices does not shrink to the competitive price. We identify necessary conditions for this counter-intuitive convergence result.     

Recursive contracts,lotteries and weakly concave Pareto sets

Marcet and Marimon (1994, revised 1998, revised 2011) developed a recursive saddle point method which can be used to solve dynamic contracting problems that include participation, enforcement and incentive constraints. Their method uses a recursive multiplier to capture implicit prior promises to the agent(s) that were made in order to satisfy earlier instances of these constraints. As a result, their method relies on the invertibility of the derivative of the Pareto frontier and cannot be applied to problems for which this frontier is not strictly concave. In this paper we show how one can extend their method to a weakly concave Pareto frontier by expanding the state space to include the realizations of an end of period lottery over the extreme points of a flat region of the Pareto frontier. With this expansion the basic insight of Marcet and Marimon goes through – one can make the problem recursive in the Lagrangian multiplier which yields significant computational advantages over the conventional approach of using utility as the state variable. The case of a weakly concave Pareto frontier arises naturally in applications where the principal?s choice set is not convex but where randomization is possible.