Social welfare and profit maximization from revealed preferences

Consider the seller's problem of finding optimal prices for her $n$ (divisible) goods when faced with a set of $m$ consumers, given that she can only observe their purchased bundles at posted prices, i.e., revealed preferences. We study both social welfare and profit maximization with revealed preferences. Although social welfare maximization is a seemingly non-convex optimization problem in prices, we show that (i) it can be reduced to a dual convex optimization problem in prices, and (ii) the revealed preferences can be interpreted as supergradients of the concave conjugate of valuation, with which subgradients of the dual function can be computed. We thereby obtain a simple subgradient-based algorithm for strongly concave valuations and convex cost, with query complexity $O(m^2/\epsilon^2)$, where $\epsilon$ is the additive difference between the social welfare induced by our algorithm and the optimum social welfare. We also study social welfare maximization under the online setting, specifically the random permutation model, where consumers arrive one-by-one in a random order. For the case where consumer valuations can be arbitrary continuous functions, we propose a price posting mechanism that achieves an expected social welfare up to an additive factor of $O(\sqrt{mn})$ from the maximum social welfare. Finally, for profit maximization (which may be non-convex in simple cases), we give nearly matching upper and lower bounds on the query complexity for separable valuations and cost (i.e., each good can be treated independently)

Social preferences of future physicians.

We measure the social preferences of a sample of US medical students and compare their preferences with those of the general population sampled in the American Life Panel (ALP). We also compare the medical students with a subsample of highly educated, wealthy ALP subjects as well as elite law school students and undergraduate students. We further associate the heterogeneity in social preferences within medical students to the tier ranking of their medical schools and their expected specialty choice. Our experimental design allows us to rigorously distinguish altruism from preferences regarding equality-efficiency tradeoffs and accurately measure both at the individual level rather than pooling data or assuming homogeneity across subjects. This is particularly informative, because the subjects in our sample display widely heterogeneous social preferences in terms of both their altruism and equality-efficiency tradeoffs. We find that medical students are substantially less altruistic and more efficiency focused than the average American. Furthermore, medical students attending the top-ranked medical schools are less altruistic than those attending lower-ranked schools. We further show that the social preferences of those attending top-ranked medical schools are statistically indistinguishable from the preferences of a sample of elite law school students. The key limitation of this study is that our experimental measures of social preferences have not yet been externally validated against actual physician practice behaviors. Pending this future research, we probed the predictive validity of our experimental measures of social preferences by showing that the medical students choosing higher-paying medical specialties are less altruistic than those choosing lower-paying specialties

Allocative and Informational Externalities in Auctions and Related Mechanisms

We study the effects of allocative and informational externalities in (multi-object) auctions and related mechanisms. Such externalities naturally arise in models that embed auctions in larger economic contexts. In particular, they appear when there is downstream interaction among bidders after the auction has closed. The endogeneity of valuations is the main driving force behind many new, specific phenomena with allocative externalities: even in complete information settings, traditional auction formats need not be efficient, and they may give rise to multiple equilibria and strategic non-participation. But, in the absence of informational externalities, welfare maximization can be achieved by Vickrey-Clarke- Groves mechanisms. Welfare-maximizing Bayes-Nash implementation is, however, impossible in multi-object settings with informational externalities, unless the allocation problem is separable across objects (e.g. there are no allocative externalities nor complementarities) or signals are one-dimensional. Moreover, implementation of any choice function via ex-post equilibrium is generically impossible with informational externalities and multidimensional types. A theory of information constraints with multidimensional signals is rather complex, but indispensable for our study

An Application of Mixed Logit Estimation in the Analysis of Producers’ Stated Preferences

This paper analyzes Colorado Corn producers’ preferences over both private- and environmental public-good production system attributes. Current production practices are characterized by intensive water and chemical use, resulting in non-point source pollution to water bodies as well as soil erosion problems. Data from a stated preference survey are employed to analyze key attributes of experimentally configured irrigation systems, proposed as alternatives to current practices. Panel mixed logit estimations find positive preferences for profit, risk reduction, and, importantly, systems with less environmental impact in terms of nitrate leaching and soil erosion. The results also find presence of significant preference heterogeneity and a complementary relationship between the two environmental attributes. Analysis of this kind can be used by policy makers to predict behavioral responses associated with introduction of new technologies, or to assess welfare implications of agricultural policy changes and stricter environmental regulations.Agricultural production, profit-maximization, environment, mixed logit, stated preference, attribute part-worth, nitrate leaching, soil erosion, risk, Crop Production/Industries, C10, D62, Q12, Q15, Q51,

Bringing the Four-Eyes-Principle to the Lab

The ‘Four-Eyes-Principle’ is considered as one of the most potent measures against corruption although it lacks both theoretical and empirical justification. We show in a laboratory experiment using a standard corruption game that introducing the 4EP increases corrupt behaviour, casting doubt on its usefulness as a general recommendation. Combining data on final choices with observations on the decision making processes in teams, including a content analysis of exchanged messages, provides insights into the dynamics of team decision making and shows that the individual profit maximizing motive dominates group decision making and crowds out altruistic arguments

The use of happiness research for public policy

Research on happiness tends to follow a "benevolent dictator" approach where politicians pursue people's happiness. This paper takes an antithetic approach based on the insights of public choice theory. First, we inquire how the results of happiness research may be used to improve the choice of institutions. Second, we show that the policy approach matters for the choice of research questions and the kind of knowledge happiness research aims to provide. Third, we emphasize that there is no shortcut to an optimal policy maximizing some happiness indicator or social welfare function since governments have an incentive to manipulate this indicator

Individual Motivation, its Nature, Determinants and Consequences for Within Group Behavior

The paper deals with evaluating the adequacy of the assumption that in economic transactions people are self-interested insofar as they are motivated solely by the concern of maximizing their own utility, and in particular with assessing how this assumption affects within-group behavior. Policy and incentive structures based on the assumption of exogenous and self-interested motivation can undermine other sources of motivation and have negative effects both on cooperative behavior and also on economic efficiency. The paper sketches the motivational assumption of homo œconomicus: in the classical formulation, in rational choice theory and in Becker’s later work which introduces personal and social capital into the individual utility function. It then challenges the position that homo œconomicus contains an adequate characterization of human motivation for cooperative within-group behavior. It introduces alternative motivational behaviors: philia and altruism, identity and self-expression, moral rules, intrinsic motivation and social norms. It argues that motivations are complex and multiple; a single assumption of utility maximization is insufficient for policy purposes. As the individual is always a social being, how she behaves will be dependent on the social context in which she is acting. If motivations are endogenous, and if under certain conditions maximizing motivation displaces other sources of motivation, then these indirect effects, and their long term consequences for efficiency and equity, should be taken into account in framing economic policies.Motivation; Rational Choice; Self-Interest; Cooperation

Beyond revealed preference: choice-theoretic foundations for behavioral welfare economics

We propose a broad generalization of standard choice-theoretic welfare economics that encompasses a wide variety of nonstandard behavioral models. Our approach exploits the coherent aspects of choice that those positive models typically attempt to capture. It replaces the standard revealed preference relation with an unambiguous choice relation: roughly, x is (strictly) unambiguously chosen over y (written xP*y) iff y is never chosen when x is available. Under weak assumptions, P* is acyclic and therefore suitable for welfare analysis; it is also the most discerning welfare criterion that never overrules choice. The resulting framework generates natural counterparts for the standard tools of applied welfare economics and is easily applied in the context of specific behavioral theories, with novel implications. Though not universally discerning, it lends itself to principled refinements

Interconnection of Cable Networks: A Regulation Proposal for Broadband Internet Services

In this article a brief revision of the European and Portuguese Regulatory frameworks is made, especially in terms of the interconnection of broadband internet services that are offered by cable operators. A formalization with two cable networks is presented, in order to obtain a benchmark for symmetric networks, and two scenarios: collusion and regulated market; are developed. This justifies the implementation of regulatory policies, with the establishment of caps for the interconnection tariffs, in order to assure a larger penetration rate of the broadband internet services and a bigger total welfare.Regulation; Tariffs of Interconnection; Goodwill