HIER 2009 Abstracts

2­­170. Alberto Alesina and Paola Giuliano
Preferences for Redistribution
Abstract | ­Pape­r
This paper discusses what determines the preferences of individuals for redistribution.  We review the theoretical literature and provide a framework to incorporate various effects previously studied separately in the literature.  We then examine empirical evidence for the US, using the General Social Survey, and for a large set of countries, using the World Values Survey.  The paper reviews previously found results and provides several new ones.  We emphasize, in particular, the role of historical experiences, cultural factors and personal history as determinants of preferences for equality or tolerance for inequality.

2­­171. Alberto Alesina and Paola Giuliano
Family Ties and Political Participation
Abstract | ­Pape­r
We establish an inverse relationship between family ties, generalized trust and political participation. The more individuals rely on the family as a provider of services, insurance, transfer of resources, the lower is civic engagement and political participation. The latter, together with trust, are part of what is known as social capital, therefore in this paper we contribute to the investigation of the origin and evolution of social capital over time. We establish these results using within country evidence and looking at the behavior of immigrants from various countries in 32 different destination places.

2­­172. Justin Ho, Katherine Ho, and Julie Holland Mortimer
Welfare Effects on Full-line Forcing Contracts in the Video Rental Industry
Abstract | ­Pape­r
We provide an empirical study of bundling in a supply chain, referred to as full-line forcing.  We use an extensive dataset on contracts between video retailers and movie distributors to analyze the choices made on both sides of the market: which distributors offer full-line forcing contracts, which retailers take them up, and whether their decisions are profitable.  Most large distributors offer full-line forcing contracts in our data.  Our simulations indicate that their choices of which contracts to offer are profit-maximizing.  However, many retailers prefer to utilize linear pricing contracts even when our model indicates that this may not be profit-maximizing.

2­­173. Ioannis Ioannou, Julie Holland Mortimer and Richard Mortimer
The Effects of Capacity on Sales Under Alternative Vertical Contracts
Abstract | ­Pape­r
Retailer capacity decisions can impact sales for products by affecting, for example, availability and visibility. Using data from the U.S. video rental industry, we report estimates of the effect of capacity on sales. New monitoring technologies facilitated new supply contracts in this industry, which lowered the upfront costs of capacity and required minimum capacity purchases, strongly impacting stocking decisions. Under the traditional supply contract, capacity costs $44 per tape (avg) and the marginal tape produces 10.4 to 18.0 additional rentals. Under the new contract, capacity costs $7 per tape (avg) and the marginal tape produces 0 to 4.9 additional rentals.

2­­174. Christopher T. Conlon and Julie Holland Mortimer
Demand Estimation Under Incomplete Product Availability
Abstract | ­Pape­r
Incomplete product availability is an important feature of many markets; ignoring changes in availability may bias demand estimates.  We study a new dataset from a wireless inventory system installed on 54 vending machines to track product availability every four hours.  The data allows us to account for product availability when estimating demand, and provides a valuable source of variation for identifying substitution patterns.  We develop a procedure that allows for changes in product availability even when availability is only observed periodically.  We find significant differences in demand estimates, with the corrected model predicting significantly larger impacts of stock-outs on profitability.

2­­175. N. Gregory Mankiw and Matthew Weinzierl
The Optimal Taxation of Height: A Case Study of Utilitarian Income Redistribution
Abstract | ­Pape­r
Should the income tax include a credit for short taxpayers and a surcharge for tall ones? The standard Utilitarian framework for tax analysis answers this question in the affirmative. Moreover, a plausible parameterization using data on height and wages implies a substantial height tax: a tall person earning $50,000 should pay $4,500 more in tax than a short person. One interpretation is that personal attributes correlated with wages should be considered more widely for determining taxes. Alternatively, if policies such as a height tax are rejected, then the standard Utilitarian framework must fail to capture intuitive notions of distributive justice.

2­­176. N. Gregory Mankiw, Matthew Weinzierl and Danny Yagan
Optimal Taxation in Theory and Practice
Abstract | ­Pape­r
We highlight and explain eight lessons from optimal tax theory and compare them to the last few decades of OECD tax policy. As recommended by theory, top marginal income tax rates have declined, marginal income tax schedules have flattened, redistribution has risen with income inequality, and commodity taxes are more uniform and are typically assessed on final goods. However, trends in capital taxation are mixed, and capital income tax rates remain well above the zero level recommended by theory. Moreover, some of theory's more subtle prescriptions, such as taxes that involve personal characteristics, asset-testing, and history-dependence, remain rare in practice. Where large gaps between theory and policy remain, the difficult question is whether policymakers need to learn more from theorists, or the other way around.

2­­177. Drew Fudenberg and Daniel Hojman
Stochastic Stability in Large Populations
Abstract | ­Pape­r
Most work in evolutionary game theory analyzes a deterministic adjustment process on a continuum of agents. However, both the assumption of a continuum and that of no randomness are approximations, so it is important to study the behavior of adjustment processes on a large but finite population subject to small but persistent stochastic shocks. This paper characterizes the properties of the invariant distribution of
birth-death processes in the double limit as the population becomes infinitely large and the perturbation vanishingly small. We show that the order of these limits does not change the conclusions for processes with “strong basins,” which is the case when the unperturbed process is deterministic. In contrast, the order of limits does matter for processes with “weak basins,” where the unperturbed process is stochastic except at a finite number of points.

2­­178. Alberto Alesina, Guido Cozzi, and Noemi Mantovan
The Evolution of Ideology, Fairness and Redistribution
Abstract | ­Pape­r
Ideas about what is "fair" above and beyond the individuals' position in the income ladder determine preferences for redistribution.   We study the dynamic evolution of different economies in which redistribution policies, perception of fairness, inequality and growth are jointly determined.   We show how including fairness explains various observed relationship between inequality, redistribution and growth.   We also show how different beliefs about fairness can keep two otherwise identical countries in different development paths for a very long time.

2­­179. Ron N. Borkovsky, Ulrich Doraszelski and Yaroslav Kryukov
A Dynamic Quality Ladder Model with Entry and Exit: Exploring the Equilibrium Correspondence Using the Homotopy Method
Abstract | ­Pape­r
This paper explores the equilibrium correspondence of a dynamic quality ladder model with entry and exit using the homotopy method.  The homotopy method facilitates exploring the equilibrium correspondence in a systematic fashion; it is ideally suited for investigating the economic phenomena that arise as one moves through the parameter space and is especially useful in games that have multiple equilibria.  We discuss the theory of the homotopy method and its application to dynamic stochastic games.  We then present the following results: First, we find that the more costly and/or less beneficial it is to achieve or maintain a given quality level, the more a leader invests in striving to induce the follower to give up; the more the follower does so; and the more asymmetric is the industry structure that arises.  Second, we show that the possibility of entry and exit alone gives rise to predatory and limit investment.  Third, we illustrate and discuss the multiple equilibria that arise in the quality ladder model, highlighting the presence of entry and exit as a source of multiplicity.

2­­180. Alberto Alesina and Silvia Ardagna
Large changes in fiscal policy: taxes versus spending
Abstract | ­Pape­r
We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007.  Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases.  As for the fiscal adjustments those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP rations than those based upon tax increases.  In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions.  We confirm those results with simple regression analysis.

2­­181. Tomasz Strzalecki
Axiomatic Foundations of Multiplier Preferences
Abstract | ­Pape­r
This paper axiomatizes the robust control criterion of multiplier preferences introduced by Hansen and Sargent (2001).  The axiomatization relates multiplier preferences to other classes of preferences studied in decision theory, in particular the variational preferences, recently introduced by Maccheroni, Marinacci and Rustichini (2006).  The paper also establishes a link between the parameters of the multiplier criterion and the observable behavior of the agent.  This link enables measurement of the parameters on the basis of observable choice data and provides a useful tool for applications.