Transfers in a polarized country: bridging the gap between efficiency and stability

We consider a political economy model of country whose citizens have heterogeneous preferences for a national policy and some regions may contemplate a threat of secession. The country is efficient if its breakup into smaller countries leads to an aggregate utility loss. We show that in an efficient country whose citizens' preferences exhibit a high degree of polarization, a threat of secession cannot be eliminated without inter-regional transfers. We also demonstrate that if majority voting is used to determine the redistribution schemes within the country, then a high degree of polarization yields the full-compensation scheme as the unique political equilibrium.     

A tax programming model

This paper presents a new technique for analysing tax reform proposals. The technique is general in the sense that it allows the user to choose the targets he thinks are the most important. Using this technique the Israeli Income Tax Reform of 1975 is evaluated.     

Multidimensional scaling: Some econometric applications

Multidimensional scaling algorithms seek N points, in M-dimensional space, whose interpoint distances match in some sense the experimental dissimilarities of N variables. The dissimilarity coefficients may be qualitative and of diverse kinds. For M = 2 or 3, complex relationships can be depicted graphically and summarized succinctly. Prevalence of bulky correlation matrices in econometric research suggests multidimensional scaling may prove a helpful tool.     

The stability and breakup of nations: a quantitative analysis

This paper quantitatively analyzes the stability and breakup of nations. The tradeoff between increasing returns in the provision of public goods and the costs of greater cultural heterogeneity mediates agents’ preferences over different geographical configurations, thus determining the likelihood of secessions and unions. After calibrating the model to Europe, we identify the regions prone to secession and the countries most likely to merge. We then estimate the implied monetary gains from EU membership. As a test of the theory, we show that the model can account for the breakup of Yugoslavia and the dynamics of its disintegration. We find that economic differences between the Yugoslav republics determined the order of disintegration, but cultural differences, though small, were key to the country’s instability. The paper also provides empirical support for the use of genetic distances as a proxy for cultural heterogeneity.     

Eliciting and estimating reservation price: A semi-compensatory approach

This study proposes a two-stage method to elicit consumers' price acceptability range. The method combines a conjunctive stage to elicit price acceptability limits with a utility-based stage to choose a preferred product variation. The method is efficient in choice situations entailing many multi-attribute product variations under partial information conditions. A semi-compensatory model complements the method by jointly representing the conjunctive stage with multiple ordered-response models and the choice stage with a multinomial logit model. A case study of ceiling reservation price (CRP) elicitation for students' rental apartment choice shows (i) CRP distribution for different product variations, (ii) model estimation unraveling CRP determinants, and (iii) linkage between CRP and transaction price.     

Core equivalence with congested public goods

Summary This paper examines a model of an infinite production economy with a finite number of types of agents andsemi- public goods, which are subjected to crowding and exclusion. The utility of an agent depends not only on the vector of public commodities produced by the coalition to which she belongs, but also on the mass of agents of her type who are the members of this coalition. The main purpose of the paper is to derive necessary and sufficient conditions on the local degrees of congestion which would guarantee the equivalence between the core and the set of equal treatment Lindahl equilibria. We prove that this equivalence holdsif and only if there are constant returns to group size for each type of agents. It implies that linearity of each agent's congestion function with respect to the mass of the agents of her own type is necessary for the core equivalence to hold.The final version of this paper was written while Shlomo Weber was visiting the Technical University of Dresden as the Fellow of the Alexander von Humboldt Foundation, whose support is gratefully acknowledged. The authors are grateful to Peter Meyer, Nicholas Yannelis and the anonymous referees for useful remarks and suggestions.