‘Living’ wage, class conflict and ethnic strife

We examine how group-specific differences in reservation wage, arising due to asymmetries in social entitlements, impact on distribution via the joint determination of class conflict between workers and employers, and ‘ethnic’ conflict among workers. We model a two-dimensional contest, where two unions, representing different sections of workers, jointly but non-cooperatively invest resources against employers in enforcing an exogenously given rent, while also contesting one another. The rent arises from a ‘living’ wage, set above reservation wage rates via labour regulations. We show that high reservation wage workers gain, and employers lose, from better social entitlements for low reservation wage workers. The latter however benefit, with employers and against the former, from weak labour regulations. When minority/immigrant workers are marginalized both in the labour market and in non-wage entitlements, improving job access and expanding ‘social support’ has contradictory effects on class and ethnic conflicts. ‘Trade unionism’, i.e. political articulation of shared economic interests alone, appears insufficient to temper ethnic conflicts among workers.Class conflict, Ethnic conflict, Living wage, Labour regulation, Social entitlement, Affirmative action, Distribution.

Why Praise Inequality? Public Good Provision, Income Distribution and Social Welfare

We consider a two-person Cournot game of voluntary contributions to a public good with identical individual preferences, and examine equilibrium aggregate welfare under a separable, symmetric and concave social welfare function. Assuming the public good is pure, Itaya, de Meza and Myles (Econ. Letters, 57: 289-296; 1997) have shown that maximization of social welfare precludes income equality in this setting. We show that their case breaks down when the public good is impure: there exist individual preferences under which maximization of social welfare necessitates exact income equalization. Even if the public good is pure, any given, positive level of income inequality can be shown to be socially excessive by suitably specifying individual preferences. Thus, sans knowledge of individual preferences, one cannot reject the claim that a marginal redistribution from the rich to the poor will improve social welfare, regardless of how small inequality is in the status quo.Public goods, Voluntary Provision, Income Distribution, Inequality, Social Welfare.

Revealed Preference with Stochastic Demand Correspondence

We unify and expand the theory of consumer’s behavior, based on Samuelson’s Weak Axiom of Revealed Preference, to permit simultaneously both random choice and non-singleton choice sets. We provide a consistency postulate for demand behavior when such behavior is represented in terms of a stochastic demand correspondence. When the consumer spends her entire wealth, our rationality postulate is equivalent to a condition we term stochastic substitutability. This equivalence generates: (i) Samuelson’s Substitution Theorem, (ii) the central result in Bandyopadhyay, Dasgupta and Pattanaik (2004) and (iii) a version pertinent to deterministic demand correspondences (which independently yields Samuelson’s Substitution Theorem), as alternative special cases. Relevant versions of the non-positivity of the own substitution effect, the demand theorem and homogeneity of degree zero in prices and wealth for the consumer’s demand behavior, also follow as corollaries in every case.Stochastic demand correspondence, weak axiom of revealed preference, weak axiom of stochastic revealed preference, general substitution theorem, demand theorem.

Mother or Child? Intra-Household Redistribution under Gender-Asymmetric Altruism

In developing societies, social norms typically ascribe differential weights to paternal, maternal and communal (or state) contributions to children's expenses. Individuals internalize these valuations. I examine a Cournot model of voluntary contribution to children's goods in a two-adult household, where both spouses may have marginal rates of substitution across paternal, maternal and communal contributions that differ from unity. I show that a conflict may exist between the interests of parents and those of children. Depending on the marginal rate of substitution between paternal and maternal contributions, a lump-sum redistribution from fathers to mothers may make children better off, but both parents worse off, or vice versa. Additional public contribution funded by a lump-sum tax on either parent may make children better off, but at the cost of both parents. Thus, proposals to redistribute income from fathers to mothers need to take into account socially valorized gendered asymmetries in parental roles. Furthermore, there may exist a conflict, instead of congruence, between women and their children.intra-household distribution, social norms, domestic public good, redistribution

‘Living’ Wage, Class Conflict and Ethnic Strife

We examine how group-specific differences in reservation wage, arising due to asymmetries in social entitlements, impact on distribution via the joint determination of class conflict between workers and employers, and ‘ethnic’ conflict among workers. We model a two-dimensional contest, where two unions, representing different sections of workers, jointly but non-cooperatively invest resources against employers in enforcing an exogenously given rent, while also contesting one another. The rent arises from a ‘living’ wage, set above reservation wage rates via labour regulations. We show that high reservation wage workers gain, and employers lose, from better social entitlements for low reservation wage workers. The latter however benefit, with employers and against the former, from weak labour regulations. When minority/immigrant workers are marginalized both in the labour market and in non-wage entitlements, improving job access and expanding ‘social support’ has contradictory effects on class and ethnic conflicts. ‘Trade unionism’, i.e. political articulation of shared economic interests alone, appears insufficient to temper ethnic conflicts among workers.class conflict, ethnic conflict, living wage, labour regulation, social entitlement, affirmative action, Distribution

Contraction Consistent Stochastic Choice Correspondence

We model a general choice environment via probabilistic choice correspondences, with (possibly) incomplete domain and infinite universal set of alternatives. We offer a consistency restriction regarding choice when the feasible set contracts. This condition, 'contraction consistency', subsumes earlier notions such as Chernoff's Condition, Sen's α and β, and regularity. We identify a restriction on the domain of the stochastic choice correspondence, under which contraction consistency is equivalent to the weak axiom of revealed preference in its most general form. When the universal set of alternatives is finite, this restriction is also necessary for such equivalence. Analogous domain restrictions are also identified for the special case where choice is deterministic but possibly multi-valued. Results due to Sen (Rev Econ Stud 38: 307-317, 1971) and Dasgupta and Pattanaik (Econ Theory 31: 35-50, 2007) fall out as corollaries. Thus, conditions are established, under which our notion of consistency, articulated only in reference to contractions of the feasible set, suffices as the axiomatic foundation for a general revealed preference theory of choice behaviour.stochastic choice correspondence, contraction consistency, regularity, Chernoff’s condition, weak axiom of revealed preference, weak axiom of stochastic revealed preference, complete domain, incomplete domain

Women or Children? Intra-household redistribution under gender-asymmetric altruism

In developing societies, social norms typically ascribe differential weights to paternal, maternal and communal (or state) contributions to children’s expenses. Individuals internalize these valuations. I examine a Cournot model of voluntary contribution to children’s goods in a two-adult household, where both spouses may have marginal rates of substitution across paternal, maternal and communal contributions that differ from unity. I show that a conflict may exist between the interests of parents and those of children. Depending on the marginal rate of substitution between paternal and maternal contributions, a lump-sum redistribution from fathers to mothers may make children better off, but both parents worse off, or vice versa. Additional public contribution funded by a lump-sum tax on either parent may make children better off, but at the cost of both parents. Thus, proposals to redistribute income from fathers to mothers need to take into account socially valorized gendered asymmetries in parental roles. Furthermore, there may exist a conflict, instead of congruence, between women and their children.Intra-household distribution, social norms, domestic public good, redistribution

Contraction consistent stochastic choice correspondence

We model a general choice environment via probabilistic choice correspondences, with (possibly) incomplete domain and infinite universal set of alternatives. We offer a consistency restriction regarding choice when the feasible set contracts. This condition, ‘contraction consistency’, subsumes earlier notions such as Chernoff’s Condition, Sen’s a and ß, and regularity. We identify a restriction on the domain of the stochastic choice correspondence, under which contraction consistency is equivalent to the weak axiom of revealed preference in its most general form. When the universal set of alternatives is finite, this restriction is also necessary for such equivalence. Analogous domain restrictions are also identified for the special case where choice is deterministic but possibly multi-valued. Results due to Sen (Rev Econ Stud 38: 307-317, 1971) and Dasgupta and Pattanaik (Econ Theory 31: 35-50, 2007) fall out as corollaries. Thus, conditions are established, under which our notion of consistency, articulated only in reference to contractions of the feasible set, suffices as the axiomatic foundation for a general revealed preference theory of choice behaviour.Stochastic choice correspondence, Contraction consistency, Regularity, Chernoff’s condition, Weak axiom of revealed preference, Weak axiom of stochastic revealed preference, Complete domain, Incomplete domain.

Supply Theory sans Profit-Maximization

We utilize the analytical construct of a stochastic supply function to provide an aggregate representation of a finite collection of standard deterministic supply functions. We introduce a consistency postulate for a stochastic supply function that may be satisfied even if no underlying deterministic supply function is rationalizable in terms of profit maximization. Our consistency postulate is nonetheless equivalent to a stochastic expansion of supply inequality, which summarizes the predictive content of the traditional theory of competitive supply. A number of key results in the deterministic theory follow as special cases from this equivalence. In particular, it yields a probabilistic version of the law of supply, which implies the traditional specification. Our analysis thus provides a necessary and sufficient axiomatic foundation for a de-coupling of the predictive content of the classical theory of competitive firm behavior from its a priori roots in profit maximization, while subsuming the traditional theory as a special case.weak axiom of profit maximization, stochastic consistency, stochastic supply function, supply aggregation, stochastic supply inequality, law of supply

Should Egalitarians Expropriate Philanthropists?

Wealthy individuals often voluntarily provide public goods that the poor also consume. Such philanthropy is perceived as legitimizing one’s wealth. Governments routinely exempt the rich from taxation on grounds of their charitable expenditure. We examine the normative logic of this exemption. We show that, rather than reducing it, philanthropy may aggravate absolute inequality in welfare achievement, while leaving the change in relative inequality ambiguous. Additionally, philanthropic preferences may increase the effectiveness of policies to redistribute income, instead of weakening them. Consequently, the general normative case for exempting the wealthy from expropriation, on grounds of their public goods contributions, appears dubious.community, public goods, inequality, distribution, philanthropy, egalitarianism