Vernon Smith's Insomnia and the Dawn of Economics as Experimental Science

This is a commentary on Vernon Smith's contributions to experimental economicsexperimental economics, auctions, public goods, markets, Vernon Smith, ultimatum game, dictator games

Benefit-Cost in a Benevolent Society

How should benefit-cost analysis account for the value that benevolent individuals place on other people's pleasure from public goods? When adding up the benefits to be compared with costs, should we sum the private valuations, the altruistic valuations, or something else? This paper proposes a partial answer, along with some suggestions for benefit-cost practitioners.benefit-cost, contingent valuation, altruism

Economics in a Family Way

This paper is an advertisement for some facts and ideas that I think likely to lead to a richer theory of the economics of the family. The discussion references many papers from anthropology and biology. Because of the intimate connection between the family and reproduction, it should not be surprising that there is much to be learned about the economics of the family from the study of evolutionary biology. Given the increased prevalence in recent decades of unwed parenthood, divorce with sequential monogamy, and ``non-traditional'' family arrangements, it seems that anthropological studies of alternative family structures would help us to understand our own.Center for Research on Economic and Social Theory, Department of Economics, University of Michiganhttp://deepblue.lib.umich.edu/bitstream/2027.42/101081/1/ECON067.pd

Systems of Benevolent Utility Interdependence

This paper concerns the logic of benevolently related utility functions. A paradox of 'superbenevolence' is examined and defanged. For a finite set of benevolent consumers, the theory of cominant diagnoal matrices is shown to be a powerful tool for the study of 'normal' benevolence. To treat intergenerational benevolence properly, the standard theory of dominant diagonal matrices has to be extended to denumerably infinite dominant diagonal matrices. We show that there is a nice extension that exactly serves our purposes. These results make it possible to generalize and clarify the results of Robert Barro and Miles Kimball on familial altruism. Questions of cardinality and uniqueness of representation are also resolved. Finally, some additional light is thrown on the problem of forward and backward intertemporal consistency which was discussed by Robert Pollak, John Burbridge and others.Center for Research on Economic and Social Theory, Department of Economics, University of Michiganhttp://deepblue.lib.umich.edu/bitstream/2027.42/101089/1/ECON074.pd

Marriage Markets and Bargaining Between Spouses

Proposing marriage, an eager suitor might promise a lifetime of devoted service to the whims f his beloved. But a sensible young woman, even if she hasn't studied game theory, is likely to be skeptical. She is more likely to base her expectations about marriage on what she knows of the way her mother and other married female acquaintances have fared, than on her suitor's flattering, but unenforceable promises. At the time of a marriage, property transfers could be arranged between the family of the bride and the family of the groom, but it is simply not possible to write a premarital contract that legally binds the new couple to detailed courses of action over the course of their marriage. Most of the important decisions that they make will have to be resolved as they arise, after marriage. A theory of courtship and mating that deals satisfactorily with each individual's prospects in a marriage, must include postmarital bargaining between spouses. Conversely, since a person's bargaining power within a marriage may depend on the threat of exercising the "outside options" of divorcing and reentering the marriage market, a satisfactory theory of bargaining within marriage must include a theory of courtship and mating.Center for Research on Economic and Social Theory, Department of Economics, University of Michiganhttp://deepblue.lib.umich.edu/bitstream/2027.42/101099/1/ECON083.pd

On the Evolution of Altruistic Ethical Rules for Siblings

This paper explores the evolutionary foundations of altruism among siblings and extends biologists' kin-selection theory to a richer class of games between relatives. It shows that a population will resist invasion by dominant mutant genes if individuals maximize a "semi-Kantian" utility function in games with their siblings. It is shown that a population that resists invasion by dominant mutants may be invaded by recessive mutants. Conditions are found under which a population resists invasion by dominant and also by recessive mutants.Center for Research on Economic and Social Theory, Department of Economics, University of Michiganhttp://deepblue.lib.umich.edu/bitstream/2027.42/101086/1/ECON071.pd

Benefit-Cost Analysis and Distortionary Taxes: A Public Choice Approach

The fundamental rule of benefit-cost analysis is that if taxes are non-distortionary, then a necessary condition for efficient supply of any public good is that the sum of individual marginal rates of substitution between public and private goods equals the marginal cost of the public good. In a world where taxes distort and where most public decisions are not between Pareto-ranked alternatives, decision makes have a right to ask economic theorists for more detailed and useful advice.Center for Research on Economic and Social Theory, Department of Economics, University of Michiganhttp://deepblue.lib.umich.edu/bitstream/2027.42/101079/1/ECON065.pd

Demographics and the Political Sustainability of Pay-as-you-go Social Security

The net present value of costs and benefits from a pay-as-you-go social security system are negative for young people and positive for the elderly. If people all vote their financial self-interest, there will be a pivotal age such that those who are younger favor smaller social security benefits and those who are older will favor larger benefits. For persons of each age and sex, we estimate the expected present value gained or lost from a small permanent increase in the amount of benefits, where the cost of these benefits is divided equally among the population of working age. Assuming that everyone votes his or her long run financial self-interest, and calculating the number of voters in the population of each age and sex, we can determine whether there is majority support for an increase or a decrease in social security benefits. We use statistics on the age distribution and mortality rates for the United States to explore the sensitivity of political support for social security to alternative assumptions about the discount rate, excess burden in taxation, voter participation rates, and birth, death, and migration rates. We find that a once-and-for-all decrease in benefits would be defeated by a majority of selfish voters under a wide range of parameters. We also study the predicted majority outcomes of votes on changing the retirement age.