This paper presents an approach to inequality measurement based on an econometric model of aggregate consumer behaviour. The novel feature of this model is that systems of individual demand functions can be recovered uniquely from the system of aggregate demand functions. We present methods for evaluating social welfare based on an explicit social welfare function. This social welfare function incorporates measures of individual welfare based on indirect utility functions for all consumer units. We develop indexes of inequality based on actual and potential levels of social welfare.
A stochastic dynamic model of labour supply is specified and analysed empirically. The theoretical model provides a sound structural economic basis for a class of empirical models which have been shown useful. The implications of the estimated model are explored and diagnostic checks are suggested and implemented.
In this paper we prove some versions of the Arrow Impossibility Theorem, with the collective rationality condition weakened from transitivity to acyclicity, and the Pareto condition replaced by weaker conditions. Thus this result has weaker assumptions than versions of the Arrow Theorem which have previously appeared in the literature. Consequently it is one of the strongest impossibility theorems. Our result is an extension of a recent theorem of Blair and Pollak.
In the mid-1970s several authors studied models of markets with asymmetric information in which equilibria do not exist. Although those authors focused on models of insurance and education, it was recognized that similar nonexistence problems arise in a wide class of models with asymmetric information. Recently, Dasgupta and Maskin have demonstrated that for a game-theoretic version of at least one of those models, although no equilibria may exist in pure strategies, equilibria exist in mixed strategies. In the present paper we construct a mixed-strategy equilibrium for one member of the class—Spence's signalling model of education. Qualitative features of the equilibrium are explored.
The vulnerability to manipulate behaviour of resource allocation mechanisms is evaluated by determining the Nash equilibria of associated manipulation games. Under manipulation, all monotonic correspondences are essentially equivalent to the Walrasian correspondence. For most non-monotonic correspondences of interest, the initial position appears at equilibrium to be efficient.
When government liabilities (including money) are held in private portfolios only as stores of value and do not provide additional services (such as liquidity), real variables are not affected by changes in the money supply due to the government's trading in real assets (open market operations). This neutrality of monetary policy fails if the government either trades in nominal assets, or it distributes subsidies and levies taxes.
Monetary policy is analysed within a model that appeals to legal restrictions on private intermediation to explain the coexistence of currency and interest-bearing default-free bonds. The interaction between such legal restrictions and monetary policy is illustrated in a version of the overlapping generations model. The model shows that legal restrictions and the use of both currency and bonds permit the government to levy a nonlinear inflation tax and that such a tax may be better in terms of the Pareto criterion than a linear inflation tax.
This is a revised version of the second Review of Economic Studies Lecture presented in April 1983 at the joint meeting of the Association of University Teachers of Economics and the Royal Economic Society held in Oxford. The choice of lecturer is made by a panel whose members are currently Professors Hahn, Mirrlees and Nobay, and the paper was refereed in the usual way. GEM
We consider optimal nonuniform pricing schedules, where the price depends upon the amount purchased. Such schedules are regularly used by public utilities and other services. Welfare-optimal nonuniform prices are related to the theory of optimal uniform prices developed by Ramsey. We characterize situations in which upward or downward discontinuities in pricing schedules are optimal. Our results are applicable to a number of related problems, including optimal taxation, insurance, and incentives.
The paper develops a model of monopolistic competition in which the satisfaction levels consumers get from products are independently and identically distributed. Potential substitution among products then generates demand curves through the mechanism of order statistics. The value of extra variety can be calculated directly. Pareto, lognormal and beta distributions are investigated using numerical integration. Some but not all cases support the argument that the optimal number of firms exceeds the equilibrium number.