Knowledge that Transforms

The authors study dispersion in the prices an airline charges to different passengers on the same route. This variation in fares is substantial: the expected absolute difference in fares between two passengers on a route is 36 percent of the airline's average ticket price. The pattern of observed price dispersion cannot easily be explained by cost differences alone. Dispersion increases on routes with more competition or lower flight density, consistent with discrimination based on customers' willingness to switch to alternative airlines or flights. The authors argue that the data support models of price discrimination in monopolistically competitive markets.

Productive consumption adds to utility and income at the same time. The shadow price of a productive good is equal to its money price less its marginal product. As more of the good is consumed, its shadow price rises because of diminishing productivity, and the consumer's full income also rises because the marginal product is positive. This paper uses a simple method to derive the comparative statics of the demand system when shadow prices and full income are endogenous. The direction of the overall bias induced by endogenous prices and income is found to be determinate. We demonstrate that the demand for productive goods tends to be relatively unresponsive to exogenous changes in prices and income. We also show that labor supply will be relatively unresponsive to wage and unearned income if market work causes fatigue.

This paper modifies the modern explanation of Giffen behavior by incorporating the classical emphasis on subsistence. Specifically, the calculated redirection of consumption priorities by those reduced to subsistence income levels is embodied in the utility function, and the biological necessity of consuming sufficient nutrition to support health is modeled as a subsistence constraint. This methodology is then applied to the potato culture that existed in Ireland prior to the 1845-48 famine. It is suggested that the evolution of this culture was shaped by subsistence-driven behavior similar to the behavior that underlies the Giffen effect.

Bequest to and marriage of children can lead to a Pareto-inefficient allocation. The inefficiency (or market failure) arises because one family, making a bequest to its own child, ignores the contribution to the utility of the other family whose child enters the marriage. This note shows that an assortative mating rule based on bequests can improve or even restore Pareto efficiency when parents take account of the rule in deciding the amount of bequests to their own children.

The California One-Variety Cotton Law is an important example of technological regulation, in this case intended to serve as a de facto quality control and to mitigate externalities in production that can arise from the mixing of cottonseed at the gin. This paper describes and interprets the economic history of the law, presents a theoretical model of its economic effects, and provides quantitative estimates of the impacts on output, prices, and economic welfare, following a partial deregulation under a 1978 amendment to the law. The analysis shows that large social costs have arisen from concentrating control over the genetic base for California cotton production in the hands of a single government cotton breeder and restricting production to the use of a single selection of a single variety. Some of these costs have been eliminated by the partial deregulation in 1978 to permit private breeders to compete in the provision of genetic material, but production is still restricted to the Acala variety of cotton. While the regulation has benefited some, perhaps even a majority, of the industry participants, it has been increasingly harmful to some other growers and costly overall. The persistence of this costly regulation may be due to the distribution of its impacts: the partial deregulation yielded large increases in aggregate producer surplus but many growers experienced small losses.

Tax-supported churches were established in most American colonies. Public Congregationalist churches in New England were not privatized until the early nineteenth century. After privatization, demand for preachers rose rapidly. There is weaker evidence that church membership also rose quickly. The increase in preachers came almost totally from private denominations. The privatization of religion was further accompanied by a change in methods of finance.