Alternative measures of benefit for nonmarket goods which are substitutes or complements for market goods

Nonmarket goods include quality aspects of market goods and public goods which may be substitutes or complements for private goods. Traditional methods of measuring benefits of exogenous changes in nonmarket goods are based on Marshallian demand: change in spending on market goods or change in consumer surplus. More recently, willingness to pay and accept have been used as welfare measures. This paper defines the relationships among alternative measures of welfare for perfect substitutes, imperfect substitutes, and complements. Examples are given to demonstrate how to obtain exact measures from systems of market good demand equations.Thanks also to the very helpful anonymous reviewers for Social Choice and Welfare.Thanks to Professor Deb Brown, Purdue University, for her encouragement and help over the period in which this paper was written.     

Arrow theorems in mixed goods, stochastic, and dynamic economic environments

The original Arrow Theorem and many variants were stated with the Universal Domain assumption; but in economic situations, natural assumptions like monotonicity restrict the domain so that the Theorem does not apply. Since 1979, several authors have proved Arrow-type impossibility results in situations such as models with public goods or private goods; and a few have considered mixed-goods or stochastic alternatives models. This paper has similar results in models with mixed-goods, stochastic, and dynamic alternatives; the objects of preference can have any two features or all three. With suitable qualifications, the impossibility result continues to hold, as does the Arrow-inconsistency of arbitrarily small domains type of result I have established elsewhere.     

Arrovian theorems for economic domains. The case where there are simultaneously private and public goods

We prove that Arrow's theorem and, with quasi-transitive social preferences, a version of Mas-Colell and Sonnenschein's theorem, hold when there are simultaneously private and public goods, and the individuals are supposed to have selfish, continuous, convex and strictly increasing preferences. We first prove the results in an abstract general setting, and show that the above-mentioned economic domain is a model for this setting.We thank Donald Campbell and two anonymous referees for helpfull suggestions.     

The relevance of thinking-by-analogy for investors’ willingness-to-pay: An experimental study

People tend to think by analogies. We investigate whether thinking-by-analogy matters for investors’ willingness-to-pay for a risky asset in a laboratory experiment. We find that thinking-by-analogy has a strong influence when the assets in question have similar (but not identical) payoffs. The hypothesis of thinking-by-analogy or coarse thinking clearly outperforms other hypotheses including the hypothesis of arbitrage-free or rational pricing. When the similarity between the payoffs is reduced, the risk neutral and risk averse hypotheses outperform the hypothesis of thinking-by-analogy. Regardless of the similarity between the payoffs, the arbitrage-free or rational pricing remains the hypothesis with the worst performance.     

Choice correspondences for public goods

We consider collective choice problems where a group of agents has to decide on the location of a public facility in a Euclidean space. A well-known solution for such problems is the coordinatewise median of the reported votes and additional fixed ballots. Instead of adding ballots, we extend the median solution by allowing set-valued outcomes. This especially applies for location problems with an even number of agents. Received: 14 August 1998/Accepted: 29 August 2000     

Social capital and public goods

Previous literature suggests positive relationships between social capital, pro-social behavior and subsequent economic development. We analyze the relationship between social networks and trust (two measures of social capital) and self-reported charitable contributions of time and/or money (pro-social behavior) using data collected from two ethnically distinct, low-income neighborhoods. We find that large social networks are positively related to charitable contributions, but that the effects of trust are less robust. We also find that social networks that are more geographically dispersed tend to be larger. Our results indicate that the social capital in a neighborhood is more important than ethnicity, ethnic diversity, or other demographic information in understanding public goods contributions.     

Vetoer and tie-making group theorems for indifference-transitive aggregation rules

A binary relation is indifference-transitive if its symmetric part satisfies the transitivity axiom. We investigated the properties of Arrovian aggregation rules that generate acyclic and indifference-transitive social preferences. We proved that there exists unique vetoer in the rule if the number of alternatives is greater than or equal to four. We provided a classification of decisive structures in aggregation rules where the number of alternatives is equal to three. Furthermore, we showed that the coexistence of a vetoer and a tie-making group, which generates social indifference, is inevitable if the rule satisfies the indifference unanimity. The relationship between the vetoer and the tie-making group, i.e., whether the vetoer belongs to the tie-making group or not, determines the power structure of the rule.     

Revealing consumers' willingness-to-pay: A comparison of the BDM mechanism and the Vickrey auction

We compare the capability of the Becker–DeGroot–Marschak (BDM) mechanism and the Vickrey auction to reveal willingness-to-pay information for a sample of French consumers. We measure the bias and dispersion of bids relative to valuations. We find that the Vickrey auction, for the particular training procedure we employ, is more effective as a willingness-to-pay elicitation device than the BDM process. We conjecture that differences in the shape of the payoff function account for some of the differences.     

Public goods and Arrovian social choice

A social welfare function satisfying Arrow's independence axiom is constant or authoritarian if it generates continuous and transitive social preferences over the space of allocations of public and private goods, and individual preferences have the classical economic properties. The social welfare function will be oligarchial if it generates continuous and quasitransitive social preferences and satisfies a weak version of the Pareto criterion in addition to the independence axiom.This work was supported by the National Sciences Foundation grant no. SES 9007953. I am grateful to anonymous referees whose suggestions led to several substantial improvements.     

Strategy-proof allocation of indivisible goods

Strategy-proof allocation of a finite number of indivisible goods among a finite number of individuals is considered. The main result is that in a pure distributional case, a mechanism is strategy-proof, nonbossy and neutral if and only if it is serially dictatorial. If the indivisible goods are initially owned by the individuals, a mechanism is strategy-proof, individually rational and Pareto consistent if and only if it is the core mechanism. Received: 15 September 1997/Accepted: 12 May 1998     

Queue allocation of indivisible goods

A model with a finite number of indivisible goods (houses) and the same number of individuals is considered. The allocation of houses among the individuals according to a queue order is analysed. First an allocation mechanism is constructed where it is a dominant strategy for the individuals to truthfully report their preferences. Second it is demonstrated that in order to obtain the desired allocation, the individuals must not in general report their complete ranking of the houses, but only their maximal elements in recursively defined choice sets.Financial support from Jan Wallander's Foundation for Research in the Social Sciences is gratefully acknowledged.A first version of this paper was presented at ESEM in Cambridge 1991.     

Distribution-neutral provision of public goods

The paper describes a normative approach to budget incidence, given the provision of a public good. The objective is to balance the budget by an income tax such that the budget is distribution-neutral. This property requires that every consumer’s net welfare gain, i.e. the benefit from consuming the public good and the tax burden in financing it, does not change the inequality inherent in the income distribution. The properties of the distribution-neutral tax are investigated and completely determined. The marginal willingness to pay for the public good is decisive for the degree of progression of the tax schedule. My co-author Georg Tillmann passed away in March 2006, much too soon. He was my friend, more than a colleague. I dedicate this paper to his memory.     

A simple procedure for finding equitable allocations of indivisible goods

The paper investigates how far a particular procedure, called the “descending demand procedure,” can take us in finding equitable allocations of indivisible goods. Both interpersonal and intrapersonal criteria of equitability are considered. It is shown that the procedure generally fares well on an interpersonal criterion of “balancedness”; specifically, the resulting allocations are Pareto-optimal and maximize the well-being of the worst-off individual. As a criterion of intrapersonal equitability, the property of envy-freeness is considered. To accommodate envy-freeness, a modification of the basic procedure is suggested. With two individuals, the modified procedure is shown to select the envy-free allocations that are balanced, i.e. the allocations that maximize the well-being of the worse-off individual among all envy-free allocations. Received: 3 March 2000/Accepted: 27 November 2000     

Reference functions and possibility theorems for cardinal social choice problems

 In this paper, we provide axiomatic foundations for social choice rules on a domain of convex and comprehensive social choice problems when agents have cardinal utility functions. We translate the axioms of three well known approaches in bargaining theory (Nash 1950; Kalai and Smorodinsky 1975; Kalai 1977) to the domain of social choice problems and provide an impossibility result for each. We then introduce the concept of a reference function which, for each social choice set, selects a point from which relative gains are measured. By restricting the invariance and comparison axioms so that they only apply to sets with the same reference point, we obtain characterizations of social choice rules that are natural analogues of the bargaining theory solutions. Received: 8 August 1994/Accepted: 12 February 1996     

Binary participation and incremental provision of public goods

This paper presents a comprehensive analysis of voluntary binary participation in the provision of public goods in a full information setting where the marginal product of participation is positive but decreases with the number of participants. Our study extends Palfrey and Rosenthal's (1984) binary model. It deals with an important special case of uniform multi-person prisoner's dilemma, Schelling (1978), that might be conceived of as the discrete counterpart of the continuous model where both players' contributions and the production function of the public good are continuous, Olson (1965), Chamberlin (1974), McGuire (1974). For pure strategies, we find that as in the continuous setting, Nash equilibria are inefficient and the public good is underprovided. Surprisingly, for mixed strategies, the symmetric equilibria are inefficient, however, even in expected terms, the public good can be overprovided. The concurrence between inefficiency and underprovision of the public good reemerges, provided that one of the following holds: (i) the number of potential participants is sufficiently large, (ii) the marginal product of participation is sufficiently stable, (iii) the costs of participation are sufficiently low or sufficiently high, or (iv) the identical players are constrained to select identical strategies.We would like to thank Howard Rosenthal and two anonymous referees for very helpful comments and suggestions.     

Utilities,preferences, and substantive goods

 People’s utility levels are meant to be measures of their well-being. Early utilitarians defined them in terms of people’s happiness. Modern economics defines them in terms of people’s actual preferences. But in ethics they have to be defined in terms of people’s informed preferences. I shall discuss the relationship between people’s desires and preferences, and that between their reasoned and unreasoned preferences. I shall argue that people’s basic desires are much the same, whereas their preferences are often very different. Finally, I shall argue, contrary to Scanlon’s theory, that the things that are good for us are beneficial to us ultimately because they satisfy our biological and psychological needs and our personal interests. Received: 8 July 1996     

Public goods,growth, and welfare

This paper examines the possibility of immiserizing growth in an economy with a private and a pure public good. Our analysis shows that increases in resource endowments and/or technical improvements affecting the public good will be welfare-improving when the two commodities are normal and a Nash equilibrium exists. When substitution effects are strong, immiserizing growth is likely to characterize technical advances in the private good production.The authors gratefully acknowledge the helpful comments of two anonymous referees. Any remaining shortcomings are solely those of the authors.     

Altruism in valuing government and market-supplied goods

Respondents in two studies rated the value of goods and services generally, according to their perceived self-interest, and according to their perception of the public-interest. Study 1 found that the general ratings of government-provided goods were closer to public-interest ratings than to self-interest ratings, suggesting valuation of such goods is not solely determined by self-interest. Study 2 found a similar phenomenon applied for some market-supplied goods.     

Strategy-proof allocation of multiple public goods

This paper characterizes strategy-proof social choice functions (SCFs), the outcome of which are multiple public goods. Feasible alternatives belong to subsets of a product set . The SCFs are not necessarily “onto”, but the weaker requirement, that every element in each category of public goods A _k is attained at some preference profile, is imposed instead. Admissible preferences are arbitrary rankings of the goods in the various categories, while a separability restriction concerning preferences among the various categories is assumed. It is found that the range of the SCF is uniquely decomposed into a product set in general coarser than the original product set, and that the SCF must be dictatorial on each component B _l . If the range cannot be decomposed, a form of the Gibbard–Satterthwaite theorem with a restricted preference domain is obtained.