Luxury Goods and the Equity Premium

This paper evaluates the equity premium using novel data on the consumption of luxury goods. Specifying utility as a nonhomothetic function of both luxury and basic consumption goods, we derive pricing equations and evaluate the risk of holding equity. Household survey and national accounts data mostly reflect basic consumption, and therefore overstate the risk aversion necessary to match the observed equity premium. The risk aversion implied by the consumption of luxury goods is more than an order of magnitude less than that implied by national accounts data. For the very rich, the equity premium is much less of a puzzle.     

ACCOUNTING FOR SOCIAL COSTS ASSOCIATED WITH RESALE PRICE MAINTENANCE

Resale price maintenance (RPM) can provide a positive or negative effect on social welfare. The evaluation depends on many factors, such as whether a high-demand or low-demand state exists, storage/holding costs, and disposal costs. A number of articles addressing the welfare effects of RPM conclude they enhance social welfare. Disposal costs for manufactured products are real and increasingly accounted for in firm costs, and are an essential issue in environmental economics. This article examines the case for RPM with disposal costs. When not incorporated into firm profits, RPM may be welfare reducing. (JEL D42 , D62 , D81 )     

Gender and Race Differences in Company Training

Using recent data from the National Longitudinal Survey of Youth, it is found that among young workers from 1986 to 1991, there were no gender or race differentials in the likelihood of receiving training, in participation in multiple training events, or in hours of training received. White women, however, were more likely to receive more training per hour worked than white men. This gender differential appears to occur because white women are more likely to work fewer hours and to be employed in entry-level positions that are associated with greater training intensity.     

Migrant Organization and Hometown Impacts in Rural Mexico

The interaction between migration, development and rural democratization is not well understood. Exit is usually understood as an alternative to voice, but the Mexican experience with cross-border social and civic action led by hometown associations suggests that exit can also be followed by voice. This article explores migrant impacts on hometown civic life, focusing on voice and bargaining over community development investments of collective remittances that are matched by government social funds. The most significant democratizing impacts include expatriate pressures on local governments for accountability and greater voice for outlying villages in municipal decision-making.     

Exponential Growth Bias and Household Finance

Exponential growth bias is the pervasive tendency to linearize exponential functions when assessing them intuitively. We show that exponential growth bias can explain two stylized facts in household finance: the tendency to underestimate an interest rate given other loan terms, and the tendency to underestimate a future value given other investment terms. Bias matters empirically: More‐biased households borrow more, save less, favor shorter maturities, and use and benefit more from financial advice, conditional on a rich set of household characteristics. There is little evidence that our measure of exponential growth bias merely proxies for broader financial sophistication.     

Does Wage Rank Affect Employees’ Well‐being?

How do workers make wage comparisons? Both an experimental study and an analysis of 16,000 British employees are reported. Satisfaction and well‐being levels are shown to depend on more than simple relative pay. They depend upon the ordinal rank of an individual's wage within a comparison group. “Rank” itself thus seems to matter to human beings. Moreover, consistent with psychological theory, quits in a workplace are correlated with pay distribution skewness.     

ENERGY-EFFICIENT LIGHTING: MARKET DATA, MARKET IMPERFECTIONS, AND POLICY SUCCESS

Many economists question engineering-economic studies aimed at demonstrating anomalously slow diffusion of energy-efficient technology and the benefits of regulations to promote such technology. One argument against such studies is that standard techniques of engineering economics are either inappropriate or are routinely misapplied in assessing the performance of the market for energy efficiency. This paper takes account of such critiques in presenting engineering-economic evidence on the diffusion of energy efficiency improvements. It examines the engineering and economic characteristics of standard and energy-efficient magnetic ballasts for fluorescent lighting. Efficient magnetic ballasts represent an excellent investment for 99 percent of the commercial building floor stock and a moderately good investment for 0.7 percent of the commercial floor stock. Still, in the 1980s these ballasts were being adopted only at a rate commensurate with the enactment of appliance efficiency standards in various states. In this case, solid empirical evidence supports skepticism about the effectiveness of the market mechanism in promoting cost-effective energy efficiency improvements and about the benefits of regulation to counteract this shortcoming.