Experienced Utility versus Decision Utility: Putting the 'S' in Satisfaction

Recent research distinguishes an individual's decision utility, inferred from her observed choices, from her experienced utility, which more closely matches the notion of happiness. Using various estimation techniques with a unique experimental data set, we test whether post-choice satisfaction (experienced utility), like decision utility, is S-shaped with loss aversion around a given reference point. We also present a model which estimates the satisfaction function and reference point simultaneously. When pooling the data across individuals, we find an S-shaped satisfaction function in which the reference point depends on past payments, social comparisons, and subjective expectations. There is mixed evidence of loss aversion. At the individual level, there is substantial variation in satisfaction function shapes, although the S-shape is common. Though the two notions of utility are distinct, our findings imply that the two are related at a fundamental level.Happiness; Utility; Experiment; Value function; Prospect theory

Social capital and the reproduction of economic inequality in polarized societies

This paper explores the idea of how wealth is distributed across social groups (ethnic or language groups, gender, etc.) and how such distribution fundamentally affects the evolution of economic inequality. By providing microfoundations suitable for this exploration, the paper hopes to enhance the understanding of when social forces contribute to the reproduction of economic inequality. In tackling this issue, the paper offers contributions in two domains. First, it models social capital as a real capital asset with direct use and collateral value. Second, it extends the concepts of identity, alienation and polarization used by Esteban and Ray (1994). This generalization permits consideration of the multiple characteristics that shape social identity, inclusion and exclusion. It also underwrites a higher-order measure of socioeconomic polarization that permits exploration of the hypothesis that economic inequality is most pernicious and persistent when it is socially embedded. Among other things the paper shows that holding constant the initial levels of economic polarization and wealth inequality, higher socioeconomic polarization increases subsequent income and wealth inequality. Far from being a distributionally neutral panacea for missing markets, social capital in this model may itself generate exclusion and deepen social and economic cleavages.Equality ,Social capital ,economic distribution ,

Left, Right, Left: Income and Political Dynamics in Transition Economies

The political left turn in Latin America, which lagged its transition to liberalized market economies by a decade or more, challenges conventional economic explanations of voting behavior. While the implications of upward mobility for the political preferences of forward-looking voters have been studied, neither the upward mobility model nor conventional myopic median voter models are well equipped to explain Latin America's political transformation. This paper generalizes the forward-looking voter model to consider a broad range of dynamic processes. When voters have full information on the nature of income dynamics in a transition economy, we show that strong support for redistributive policies will materialize rapidly if income dynamics offer few prospects of upward mobility for key sections of the electorate. In contrast, when voters have imperfect information, our model predicts a slow and politically polarizing shift toward redistributive voter preferences under these same non-concave income dynamics. Simulation using fitted income dynamics for two Latin American economies suggests that the imperfect information model better accounts for the observed shift back to the left in Latin America, and that this generalized, forward-looking voter approach may offer additional insights about political dynamics in other transition economies.income dynamics, redistributive politics, polarization, Bayesian learning, Latin America

Cricket interruptus: Fairness and incentive in interruped cricket matches

We present a new adjustment rule for interrupted cricket matches that equalizes the probability of winning before and after the interruption. Our proposal differs from existing rules in the quantity preserved (the probability of winning), and also in the point at which it is measured (the time of interruption). We claim this is both fair and free of incentive effects. We give several examples of how our rule could have been applied in past matches, including some in which the ultimate result might have been different.

Social Capital and Incentive Compatibility: Modelling the Accumulation and Use of Social Collateral

In economics, where the long resistance to reflecting on the effects of social interaction on economic behaviour is slowly waning, the concept of social capital may turn out to be a useful analytical tool. However, initial interest in social capital has produced a large variety of definitions, theoretical frameworks, empirical analyses, and even policy prescriptions. This paper provides a selective review and critique of some of the more recent literature on social capital. It then suggests that many of the problems in the existing literature can be addressed by lowering aspirations about what social capital is and reformulating it in terms of its impact on incentive problems in economic transactions in the presence of imperfect markets and costly or non-enforceable contracts. The paper finally advances a model of one of the ways that social capital resolves incentive compatibility problems, namely its role as a collateral assetSocial Capital; Incentive Compatibility; Social Collateral; Credit

Social Capital and Incentive Compatibility: Modelling the Accumulation and Use of Social Collateral

In economics, where the long resistance to reflecting on the effects of social interaction on economic behaviour is slowly waning, the concept of social capital may turn out to be a useful analytical tool. However, initial interest in social capital has produced a large variety of definitions, theoretical frameworks, empirical analyses, and even policy prescriptions. This paper provides a selective review and critique of some of the more recent literature on social capital. It then suggests that many of the problems in the existing literature can be addressed by lowering aspirations about what social capital is and reformulating it in terms of its impact on incentive problems in economic transactions in the presence of imperfect markets and costly or non-enforceable contracts. The paper finally advances a model of one of the ways that social capital resolves incentive compatibility problems, namely its role as a collateral asset.

A model of manager-induced organisational stability in post-Soviet agriculture

Agricultural transition in the former Soviet Union has, surprisingly for many observers, not led to a widespread adoption of individual farming. This article attempts to understand some previously neglected forces behind this outcome. It develops a theoretical model of farm restructuring in which managers exploit the preferences of workers for conformity within a social reference group to cement their own power. The model provides a rationale for the persistent support among workers and managers to the status-quo organisation, despite the availability of a more efficient individual farming option. Based on empirical evidence, we argue that managers have an incentive to keep horizons of workers limited by sheltering them from pro-reform influences. Polar reform equilibria are generated that are consistent with the observed spatial patterns of restructuring. The model predicts that policies aiming at the establishment of independent farms will fail unless they induce a big push in reform attitudes among workers.Agricultural transition, former Soviet Union, social interaction effects, farm restructuring., Farm Management,

Specialization without regret - transfer rights, agricultural productivity, and investment in an industrializing economy

A number of studies have examined the effects of secure tenure on agricultural investment and productivity. The authors also study the importance of rights to household residual income and land use being transferable. Contemporary China - where industrialization has spread rapidly, if unevenly - is a good place to study the economic effects of transfer rights as well as conventional security of tenure. Village collectives formally own land in China, so there can be no individual land sales, but farmers are sometimes entitled to sell their rights to use the land allocated to them under the household responsibility system. Whether a household has secure tenure depends on whether its landholding will be reduced if the household population declines, whether the landholding will be increased if the household population increases, and how frequent average land adjustments are under the household responsibility system. Analyzing panel data for a sample of farm households, the authors study the"investment regret mitigation effect", which results when greater transfer rights make households more willing to invest because they are less likely to regret such investments when they can recoup the investment value even if they exit farming. The authors find that transfer rights may be especially important in an industrializing economy. A property rights system with incomplete security of tenure but with strong transfer rights that permit"specialization without regret"- so farmers can recoup the value of an investment even if they exit farming - may have much to recommend it.Economic Theory&Research,Environmental Economics&Policies,Labor Policies,Banks&Banking Reform,Municipal Financial Management,Environmental Economics&Policies,Economic Theory&Research,Banks&Banking Reform,Municipal Financial Management,Municipal Housing and Land

Getting Institutions 'Right' for Whom: Credit Constraints and the Impact of Property Rights on the Quantity and Compostiton of Investment

The effects of property rights on investment are typically hypothesized to occur through a security-induced investment demand and a collateral-based credit supply. Using a two period model, this paper shows that for farms that are constrained in their access to liquidity, the investment demand effect will itself induce an increase in the endogenous shadow price of liquidity. Other things equal, this induced increase in the price of liquidity will discourage capital accumulation, and that the desired stock of expropriation-immune movable capital may decrease with tenure security. Empirical analysis of farm-level data from Paraguay corroborates this proposition and reveals that the underlying pattern of wealth-biased capital access creates a world in which property rights reform has differential effects across producer wealth classes and gets institutions "right" and agriculture moving for only for a wealthier subset of producers.