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

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.

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.

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

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

Sticks and carrots for the alleviation of long-term poverty

Work requirements can make it easier to screen the poor from the nonpoor. 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

The Power of Money: Wealth Effects in Contest

The relationship between wealth and power has long been debated. Nevertheless, this relationship has been rarely studied in a strategic game. In this paper, we study wealth effects in a strategic contest game. Two opposing effects arise: wealth reduces the marginal cost of effort but it also reduces the marginal benefit of winning the contest. We consider three types of contests which vary depending on whether rents and efforts are commensurable with wealth. Our theoretical analysis shows that the effects of wealth are strongly "contestdependent". It thus does not support general claims that the rich lobby more or that low economic growth and wealth inequality spur conflicts

Optimal hospital payment rules under rationing by waiting

We derive optimal rules for paying hospitals for non-emergency care when providers choose quality and capacity, and patient demand is rationed by waiting time. Waiting for treatment is costly for patients, so that hospital payment rules should take account of their effect on waiting time as well as on quality. Since deterministic waiting time models imply that profit maximising hospitals will never choose to have both positive quality and positive waiting time, we develop a stochastic model of rationing by waiting in which both quality and expected waiting are positive in equilibrium. We use it to show that, although a prospective output price gives hospitals an incentive to attract patients by raising quality and reducing waiting times, it must be supplemented by a price attached to hospital decisions on quality or capacity or to a performance indicator which depends on those decisions (such as average waiting time, or average length of stay). A prospective output price by itself can support the optimal quality and waiting time distribution only if the welfare function respects patient preferences over quality and waiting time, if patients' marginal rates of substitution between quality and waiting time are independent of income, and if waiting for treatment does not reduce the productivity of patients. If these conditions do not hold, supplementing the output price with a reward linked to the hospital's cost can increase welfare, though it is possible that costs should be taxed rather than subsidised