Who pays for switching costs?

Earlier work characterized pricing with switching costs as a dilemma between a short-term “harvesting” incentive to increase prices versus a long-term “investing” incentive to decrease prices. This paper shows that small switching costs may reduce firm profits and provide short-term incentives to lower rather than raise prices. We provide a simple expression which characterizes the impact of the introduction of switching costs on prices and profits for a general model. We then explore the impact of switching costs in a variety of specific examples which are special cases of our model. We emphasize the importance of a short term “compensating” effect on switching costs. When consumers switch in equilibrium, firms offset the costs of consumers that are switching into the firm. If switching costs are low, this compensating effect of switching costs causes even myopic firms to decrease prices. The incentive to decrease prices is even stronger for forward looking firms.     

Are Americans Really Less Happy with Their Incomes?

Recent economic research on international comparisons of subjective well‐being suffers from several important biases due to the potential incomparability of response scales within and across countries. In this paper we concentrate on self‐reported satisfaction with income in two countries: the Netherlands and the U.S. The comparability problem is addressed by using anchoring vignettes. We find that in the raw data, Americans appear decidedly less satisfied with their income than the Dutch. It turns out however that after response scale adjustment based on vignettes, the distribution of satisfaction in the two countries is essentially identical. In addition, we find that the within‐country cross‐sectional effect of income on satisfaction—a key parameter in the recent debate in the economic literature—is significantly underestimated, especially in the U.S., when differences in response scales are not taken into account.     

An exploratory inquiry into destination risk perceptions and risk reduction strategies of first time vs. repeat visitors to a highly volatile destination

The paper examines the relationships between first-time vs. repeat visitors to a highly volatile destination in terms of destination risk perceptions, risk reduction strategies and motivation for the visit. The exploratory research question centers on possible differences in tourist behavioral profiles associated with their decision to visit a foreign destination again. Set in Israel, a highly volatile tourist destination, researchers interviewed 760 international tourists using a questionnaire classifying them as either first-time or repeat visitors. Discriminant analysis revealed that first-time visitors were characterized by human-induced risk, socio-psychological risk, food safety and weather risk. In contrast, repeat visitors were associated with the destination risk factors of financial risk, service quality risk, natural disasters and car accidents. First-time vs. repeat visitors were also compared and contrasted in terms of risk reduction strategies such as consulting with people who had previously visited specific destinations and gathering information from travel agents. Differences between first-time and repeat visitors were also found regarding motivations for the visit. Similar analyses were conducted on the three sub-groups of repeat visitors, classified in terms of number of visits.     

Workers with Disabilities: Exploring the Hiring Intentions of Nonprofit and For-profit Employers

Using the Theory of Planned Behavior as a conceptual framework, focus groups were held with nonprofit and for-profit employers in order to examine behavioral intentions to hire workers with disabilities. Content analysis revealed the following main themes: (1) For-profit hiring strategies were driven by a mission to sell a product or service; (2) Nonprofit hiring strategies were driven by a mission to serve the community; (3) Forprofit hiring and nonprofit hiring were impacted by the economy; (4) Although driven to have diverse workforces, the number of workers with disabilities was largely unknown; and (5) Employer attitudes mattered and impacted job opportunities for people with disabilities. Implications of this qualitative study highlight the utility of the Theory of Planned Behavior and the role that nonprofit managers and leaders may play in improving employment opportunities for individuals with disabilities.     

Partial identification using random set theory

This paper illustrates how the use of random set theory can benefit partial identification analysis. We revisit the origins of Manski’s work in partial identification (e.g., [Manski, 1989] and [Manski, 1990]) focusing our discussion on identification of probability distributions and conditional expectations in the presence of selectively observed data, statistical independence and mean independence assumptions, and shape restrictions. We show that the use of the Choquet capacity functional and the Aumann expectation of a properly defined random set can simplify and extend previous results in the literature. We pay special attention to explaining how the relevant random set needs to be constructed, depending on the econometric framework at hand. We also discuss limitations in the applicability of specific tools of random set theory to partial identification analysis.     

The dynamics of preference formation

A model is developed and estimated which explains the formation of individual preferences on consumption under the influence of contacts with others (preference interdependence) and own consumption over time habit formation). The model employs a cardinal utility function which can be measured independently of behavioral assumptions. Since preference interdependence has been analyzed earlier, the paper concentrates on habit formation, the preference interdependence component being imputed from an earlier study. Due to data restrictions and measurement error, special econometric provisions must be made. Preference interdependence appears to explain two thirds of individual preferences and habit formation one third.     

An improvement of the supply analysis of the farming industry: The value added approach

It is a very well-known fact that there is a tremendous differentiation process going on in the production of food and fiber. Our first topic is that the consequences for the supply analysis of the farming industry, however, are not noted. This of course can lead to serious errors in the estimation of supply elasticities of farming industry. It is very well-known that the contribution of a sector to the national income is the net value added. Thus the economic product that originated in this sector is the quantity component of net value added, which can be called net product. The prices which determine the production of this sector are the price component of net value added and the prices of the factors of production in agriculture. What the relationship is between production and prices is the second topic of our paper. The estimation is the third topic in which we propose rather simple solutions for some problems. These problems, as e.g. tautological specification, were also present in the traditional analysis, but were not treated properly. The results of the traditional method are very different from those of our new approach.     

Utility and economics

Summary Although utility has been the central concept in economics, economists have paid relatively little attention to its measurement. Generally, utility is measured indirectly via the revealed preference approach. We discuss problems with this approach and next introduce alternative direct measurement methods. The direct measurement methods are seen to spawn a so-called theory of preference formation, which explains differences in utility functions of different individuals. The similarities of this theory with related theories in sociology and psychology, and various sorts of empirical evidence, are reviewed. The paper concludes with a discussion of the implications of these findings for economic theories.This is a slightly adapted version of my inaugural address at Tilburg University. I thank Tom Wansbeek for his helpful comments.     

The Structure of Indonesian Manufacturing Industry: An Input-Output Approach∗

The paper examines the structure of Indonesia's manufacturing sector, using data from the 1980 input-output tables., and supporting data from various industrial surveys and national accounts. An input-output analysis of sectoral linkages and factor demand (labour, proxies for skill and capital, imports) is used to derive implications for growth and employment of two contrasting industrial development strategies — a labour-intensive strategy and a more capital-intensive strategy fostering basic industries. It is argued that a labour-intensive, resource-based, and export-oriented strategy combined with selective import substitution is most likely to achieve the stated development goals of the Indonesian government.