A MARKET WITH A SOCIAL CONSUMPTION EXTERNALITY*

We model a spatial market in which the utility of each consumer is affected by the consumers who buy precisely the same product. The marginal contribution of consumers x's purchase on consumer y depends on |x–y|, which declines as |x–y| increases. Such modelling of preferences fits goods that signal a consumer's place in society—clothing styles, automobiles and jewellry are examples. For 2n + 1 firms we find the unique symmetric equilibrium and derive comparative statics on the optimal number of firms, the largest number of firms the market can support, and the behaviour of profits per firm as n increases.     

COMMUNAL DUALITY: AGRICULTURAL SUBSIDIES FROM TVES

The policy of subsidizing agriculture with profits made by township and village enterprises has played an important role in maintaining stability and accelerating balanced economic growth in the Chinese rural areas. It represents an interesting subject in the literature of development economics for two reasons. First, the policy started at a very early stage of industrialization. Second, the policy has been carried out often voluntarily at the community level rather than at the state level. This paper examines the origin and rationales of such a policy and finds that the policy cannot be understood unless we look into a special institutional arrangement: China's unique communal duality. Study of the subject contributes significantly to an understanding of development economics. ( JEL P5, Q0, O2)     

BENEFITS AND COSTS OF INTENSIVE FOSTER CARE SERVICES: THE CASEY FAMILY PROGRAMS COMPARED TO STATE SERVICES

The foster care system attempts to prepare children and youth who have suffered child maltreatment for successful adult lives. This study documents the economic advantages of a privately funded foster care program that provided longer term, more intensive, and more expensive services compared to public programs. The study found significant differences in major adult educational, health, and social outcomes between children placed in the private program and those placed in public programs operated by Oregon and Washington. For the outcomes for which we could find financial data, the estimated present value of the enhanced foster care services exceeded their extra costs. Generalizing to the roughly 100,000 adolescents age 12-17 entering foster care each year, if all of them were to receive the private model of services, the savings for a single cohort of these children could be about $6.3 billion in 2007 dollars. ( JEL D61, H75)     

Marriage Matching and Intercorrelation of Preferences

Men's and women's preferences are intercorrelated to the extent that men rank highly those women who rank them highly. Intercorrelation plays an important but overlooked role in determining outcomes of matching mechanisms. We employ simulation techniques to quantify the effects of intercorrelated preferences on men's and women's aggregate satisfaction with the outcome of the Gale–Shapley matching mechanism. Our results show that even a small amount of positive intercorrelation in a matching market means increased satisfaction for women and dramatically decreased potential for strategic manipulation. Negative intercorrelation has the opposite effects. Thus, matching markets characterized by positive intercorrelation are well suited for matching via Gale–Shapley, while markets characterized by negative intercorrelation may face opposition from the nonproposing side of the market. So that our results are immediately applicable, we also define and employ a general measure of intercorrelation that can be used for any matching market.     

COMPETITIVE NEED LIMITS AND THE U.S. GENERALIZED SYSTEM OF PREFERENCE

The United States uses competitive need limits to deny Generalized System of Preferences (GSP) treatment of imports from developing countries. The analysis here estimates in two ways the effect of competitive need limits on GSP imports. First, it uses ex post trade data to determine the effect on import values and shares. Second, it combines an ex ante model with trade and elasticity data to estimate the effect of competitive need limits. Results indicate that competitive need limits reduce affected imports by 10 to 17%. Benefits from this import reduction accrue almost exclusively to U.S. import competing firms.