An alternative way to model merit good arguments

Besley (1988) uses a scaling approach to model merit good arguments in commodity tax policy. In this paper, I question this approach on the grounds that it produces 'wrong' recommendations--taxation (subsidisation) of merit (demerit) goods--whenever the demand for the (de)merit good is inelastic. I propose an alternative approach that does not suffer from this deficiency, and derive the ensuing first and second best tax rules, as well as the marginal cost expressions to perform tax reform analysis.merits goods, commodity taxation, tax reform analysis

Income risk aversion with quantity constraints.

In this paper, I consider a consumer with a concave utility function over n commodities and trace out the consequences of quantity constraints on product markets for the consumer’s aversion towards income risk. I show that the effect can be decomposed in a cardinal and ordinal term, that both terms may add up to a non-linear effct on the coefficient of relative risk aversion, and that a severely rationed consumer may even become less risk averse then when unconstrained.Household demand; income risk aversion; quantity constraints.

Attitudes towards income risk in the presence of quantity constraints.

Considering a consumer with standard preferences, I trace out the consequences for risk aversion and prudence of quantity constraints on markets. I first show how the effect can be decomposed into a price risk effect and an endogenously changing risk aversion/prudence effect. Next, I calibrate locally both effects on relative risk aversion and prudence, using estimates on household demand for durables and labour supply. Finally, I performa global numerical analysis of these effects. I conclude that quantity constraints have counter-intuitive and pronounced non-linear effects on risk attitudes.Household demand; income risk aversion; prudence; quantity constraints; labour supply.

Sticks and Carrots for the Alleviation of Long Term Poverty

Work requirements can make it easier to screen the poor from the non-poor.They can also affect future poverty by changing the poors' incentive to invest in their income capacity. The novelty of our study is the focus on long term poverty. We find that the argument for using work requirements as a screening device is both strengthened and weakened with long term poverty, and that the possibility of using work requirements weakens the incentives to exert effort to escape poverty. We also show that the two incentive problems, to screen poverty and deter poverty, are interwoven; the fact that the poor can exert an effort to increase their probability of being non-poor in the future makes it easier to separate the poor from the non-poor in the initial phase of the program. Finaly we show that if it is possible to commit to a long term poverty alleviation program it is almost always optimal to impose some work requirements on those that receive transfers.long-term poverty, ratchet effect, moral hazard, screening.

Optimal pricing and capacity choice for a public service under risk of interruption

We develop rules for pricing and capacity choice for an interruptible service that recognise the interdependence between consumers' perceptions of system reliability and their market behaviour. Consumers post ex ante demands, based on their expectations on aggregate demand. Posted demands are met if ex post supply capacity is sufficient. However, if supply is inadequate all ex ante demands are proportionally interrupted. Consumers' expectations of aggregate demand are assumed to be rational. Under reasonable values for the consumer's degrees of relative risk aversion and prudence, demand is decreasing in supply reliability. We derive operational expressions for the optimal pricing rule and the capacity expansion rule. We show that the optimal price under uncertainty consists of the optimal price under certainty plus a markup that positively depends on the degrees of relative risk aversion, relative prudence and system reliability. We also show that any reliability enhancing investment - though lowering the operating surplus of the public utility - is socially desirable as long as it covers the cost of investment.D11, D24, D45, H42, Q25

A benchmark value for relative prudence

In this paper we propose benchmark values for the coefficients of relative risk aversion and relative prudence on the basis of a binary choice model where the decision maker chooses between aggregating or disaggragating multiplicative risks. We relate our results to the decison maker's willingness to trade-off the second with the first and the third (central) moment of his wealthdistribution.relative risk aversion, relative prudence

Physics of a partially ionized gas relevant to galaxy formation simulations -- the ionization potential energy reservoir

Simulation codes for galaxy formation and evolution take on board as many physical processes as possible beyond the standard gravitational and hydrodynamical physics. Most of this extra physics takes place below the resolution level of the simulations and is added in a sub-grid fashion. However, these sub-grid processes affect the macroscopic hydrodynamical properties of the gas and thus couple to the on-grid physics that is explicitly integrated during the simulation. In this paper, we focus on the link between partial ionization and the hydrodynamical equations. We show that the energy stored in ions and free electrons constitutes a potential energy term which breaks the linear dependence of the internal energy on temperature. Correctly taking into account ionization hence requires modifying both the equation of state and the energy-temperature relation. We implemented these changes in the cosmological simulation code Gadget2. As an example of the effects of these changes, we study the propagation of Sedov-Taylor shock waves through an ionizing medium. This serves as a proxy for the absorption of supernova feedback energy by the interstellar medium. Depending on the density and temperature of the surrounding gas, we find that up to 50% of the feedback energy is spent ionizing the gas rather than heating it. Thus, it can be expected that properly taking into account ionization effects in galaxy evolution simulations will drastically reduce the effects of thermal feedback. To the best of our knowledge, this potential energy term is not used in current simulations of galaxy formation and evolution.Comment: 8 pages, 4 figures. Accepted for publication in Ap

The legal incidence of ad valorem taxes matters

It is well known that, for a specific tax, its economic incidence does not depend on which side of the market has the legal obligation to pay the tax. In this paper, we show that, for an ad valorem tax, this legal incidence does matter for the economic incidence. In particular, when a government imposes an ad valorem tax rate on the sale of a commodity, the resulting reduction in the market equilibrium level of sales will be larger when sellers are obliged to pay the tax than when buyers are obliged to pay the tax