PRICING ANOMALIES IN THE MARKET FOR DIAMONDS: EVIDENCE OF CONFORMIST BEHAVIOR

Some goods are consumed not just for their intrinsic utility but also for the impression their consumption has on others. We analyze the market for such a commodity—diamonds. We collect data on price and other attributes from the inventories of three large online retailers of diamonds. We find that people are willing to pay premiums upward of 18% for a diamond that is one‐half carat rather than slightly less than a half carat and between 5% and 10% for a one‐carat rather than a slightly less than one‐carat stone. Since a major portion of larger gem‐quality diamonds are used for engagement rings, such an outcome is consistent with Bernheim's model of conformism, where individuals try to conform to a single standard of behavior that is often established at a focal point. In this case, prospective grooms signal their desirability as a mate by the size of the diamond engagement ring they give their fiancées. (JEL A1, D4)     

On the social stability of coalitional property rights regimes

We present a model of coalitional property rights (CPR) regimes– regimes in which ownership of a good is attributable to coalitions of various sizes. Specifically, for each good, we define a legal structure that specifies the legal coalitions of individuals that share a communal claim to that good. Generally, each legal coalition may use exclusionary rules to allocate its holdings internally. These rules allow eligible subcoalitions to recontract by expropriating some fraction of the legal coalition's endowment. We then ask: what types of CPR regimes are socially stable in the sense of having a nonempty core? We give conditions on the legal structure and the primitives of the economy that achieve social stability in this sense. We emphasize two cases of particular interest. ( I ) Unanimity. Unanimity is required for a legal coalition to recontract against (block) the status quo. In this case, the core is nonempty under standard assumptions. Each agent's ability to veto an alternative allocation allows a partial characterization in terms of the economies that are privatized by dividing up the communal endowment among the members of each legal coalition. We show that in some economies' collective vs private ownership matters in terms of social stability. ( II ) Exclusion. Many eligible subcoalitions can expropriate the legal coalition's entire endowment. An example is the collection of simple majorities. The presence of cycles can easily lead to social instability. We show that if endowment holdings are sufficiently “specialized” and each agent's “veto power” sufficiently large, then stability can be achieved despite the presence of cycles in some goods. Received: 30 June 1993/Accepted: 28 February 1998     

Equal factor equivalence in economies with multiple public goods

We reconsider the problem of provision and cost-sharing of multiple public goods. The efficient equal factor equivalent allocation rule makes every agent indifferent between what he receives and the opportunity of choosing the bundle of public goods subject to the constraint of paying r times its cost, where r is set as low as possible. We show that this rule is characterized in economies with a continuum of agents by efficiency, a natural upper bound on everyone's welfare, and a property of solidarity with respect to changes in population and preferences. Received: 3 August 1995 / Accepted : 29 April 1997     

Buddhist commons and the question of a third sector in Asia

Very little attention has been devoted by third sector researchers to the question of comparable or related activities in Asia. This article explores a complex of Asian Buddhist religious beliefs and practices using ‘the commons’ as a comparative concept. Examination of published, English-language sources provides clear evidence of the existence of a variety of third sector-like activity in Asia far in the past. Village codes codifying charitable practices and village associations have been recorded in China, Japan and Korea. In addition, a good deal of charitable and philanthropic activity has been associated with Asian Buddhism: beliefs supporting gift exchange (dharma anddana), veneration of certain leader-philanthropists, a distinctive model of community organisation (sangha), a Japanese model of fund-raising (kanjin) campaigns, and a long tradition of international Buddhist convocations are among the range of indigenous common goods which can be found in the Asian context prior to any discernible western influences.     

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.     

The benefit and sacrifice principles of taxation: A synthesis

The implications of equal sacrifice taxation have only been pursued in a very narrow context. This note applies this principle to the problem of levying taxes to provide public goods. Its purpose is to determine how taxes used to finance public goods must be structured in order to benefit each agent equally. This tax structure may be viewed as a benchmark against which to compare tax regimes with redistributive intent. Equality of taxation, therefore, as a maxim of politics, means equality of sacrifice.  . . This standard, like other standards of perfection, cannot be completely realized; but the first object in every practical discussion should be to know what perfection is.  J. S. Mill Received: 10 April 1997/Accepted: 16 November 1998     

Interaction Ritual Chains and the Mobilization of Conscientious Consumers

Markets for “socially responsible” products are comprised of activists who lead protests, organize boycotts, and promote the consumption of these goods. However, the ultimate success of these movements is dependent upon the support of a large number of consumers whose self-professed values often contradict with their own purchasing patterns. Consumer support of socially responsible products cannot be explained by consumer culture theories, which privilege identity, attitudes, and behavior, or mass consumption theories, which emphasize location and advertising’s influence on consumption patterns. These perspectives are informative but unable to explain why some consumers will only buy socially responsible products while others with similar value systems possess much more contradictory consumption patterns. I extend Collin’s theory of “Interaction Ritual chains” to show that rituals and emotions—more than identity or coercive advertising—explain how ethical consumers are mobilized. I show how face-to-face interactions between consumers and producers produce solidarity and motivate support for the Fair Trade movement. This paper employs a micro-sociological approach to contribute to studies of ethical consumption in three notable ways: 1) it emphasizes the importance of “contexts” and is able to explain contradictions in consumer behavior; 2), it contributes to our understanding of “brand communities” by describing the micro-sociological processes that both help to build these communities and create value within the products that organize these groups; and 3) it offers the potential to develop a predictive model for the purchasing patterns of consumers.     

Linear cost sharing in economies with non-Samuelsonian public goods: Core equivalence

 We consider an economy with non-Samuelsonian public goods and we focus on linear cost sharing. In a linear cost sharing equilibrium all agents in the economy optimize given a certain fixed cost share to be contributed towards the provision of public goods in the economy. Hence, each agent pays a certain fraction of the total establishment costs of public goods and these cost shares are common knowledge. We show that for a certain fixed contribution scheme the resulting linear cost share equilibria are equivalent to corresponding core allocations, in which the core is based on the integral of the individual cost shares. We also show that there is no equivalence of the Foley core with cost share equilibria, even in well-behaved large economies. Received: 16 August 1995/Accepted: 29 July 1996     

A public good version of the collective household model: an empirical approach with an application to British household data

In this paper we consider an empirical collective household model of time allocation for two-earner households. The novelty of this paper is that we estimate a version of the collective household model, where the internally produced goods and externally purchased goods are assumed to be public. The empirical results suggest that (1) Preferences of men and women differ; (2) Although there are significant individual variations, on average the utility functions of men and women are equally weighted in the household utility function; (3) Differences in the ratio of the partners’ hourly wages are explanatory for how individual utilities are weighted in the household utility function. (4) The female’s preference for household production is influenced by family size, but this does not hold for the male; (5) Both the male and the female have a backward-bending labor supply curve; (6) Labor-supply curves are forward-bending with respect to the partner’s wage rate; (7) Our model rejects the unitary Slutsky symmetry condition.

Utility, informed preference, or happiness: Following Harsanyi's argument to its logical conclusion

Harsanyi (1997) argues that, for normative issues, informed preferences should be used, instead of actual preferences or happiness (or welfare). Following his argument allowing him to move from actual to informed preferences to its logical conclusion forces us to use happiness instead. Where informed preferences differ from happiness due to a pure concern for the welfare of others, using the former involves multiple counting. This “concerning effect” (non-affective altruism) differs from and could be on top of the “minding effect” (affective altruism) of being happy seeing or helping others to be happy. The concerning/minding effect should be excluded/included in social decision. Non-affective altruism is shown to exist in a compelling hypothetical example. Just as actual preferences should be discounted due to the effects of ignorance and spurious preferences, informed preferences should also be discounted due to some inborn or acquired tendencies to be irrational, such as placing insufficient weights on the welfare of the future, maximizing our biological fitness instead of our welfare. Harsanyi's old result on utilitarianism is however defended against criticisms in the last decade. Harsanyi (1997) argues, among other things, that in welfare economics and ethics, what are important are people's informed preferences, rather than either their actual preferences (as emphasized by modern economists) or their happiness (as emphasized by early utilitarians). The main purpose of this paper is to argue that, pursuing Harsanyi's argument that allows him to move from actual to informed preferences to its logical conclusion forces us to happiness as the ultimately important thing. The early utilitarians were right after all! Since I personally approve of Harsanyi's basic argument, I regard myself as his follower who becomes more Catholic than the Pope. (It is not denied that, in practice, the practical difficulties and undesirable side-effects of the procedure of using happiness instead of preferences have to be taken into account. Thus, even if we ultimately wish to maximize the aggregate happiness of people, it may be best in practice to maximize their aggregate preferences in most instances. This important consideration will be largely ignored in this paper.) The secondary objective is to give a brief defence of Harsanyi's (1953, 1955) much earlier argument for utilitarianism (social welfare as a sum of individual utilities) that has received some criticisms in the last decade. The argument (e.g. Roemer 1996) that Harsanyi's result is irrelevant to utilitarianism is based on the point that the VNM (von Neumann-Morgenstern) utility is unrelated to the subjective and interpersonally comparable cardinal utility needed for a social welfare function. Harsanyi's position is defended by showing that the two types of utility are the same (apart from an indeterminate zero point for the former that is irrelevant for utilitarianism concerning the same set of people). Received: 29 May 1997 / Accepted: 3 November 1997     

‘One and a Half Dimensional’ Preferences and Majority Rule

I examine a model of majority rule in which alternatives are described by two characteristics: (1) their position in a standard, left-right dimension, and (2) their position in a good-bad dimension, over which voters have identical preferences. I show that when voters’ preferences are single-peaked and concave over the first dimension, majority rule is transitive, and the majority’s preferences are identical to the median voter’s. Thus, Black’s (The theory of committees and elections, 1958) theorem extends to such a “one and a half” dimensional framework. Meanwhile, another well-known result of majority rule, Downs’ (An economic theory of democracy, 1957) electoral competition model, does not extend to the framework. The condition that preferences can be represented in a one-and-a-half-dimensional framework is strictly weaker than the condition that preferences be single-peaked and symmetric. The condition is strictly stronger than the condition that preferences be order-restricted, as defined by Rothstein (Soc Choice Welf 7:331–342;1990).     

THE THEORY OF INTERSTELLAR TRADE

This article extends interplanetary trade theory to an interstellar setting. It is chiefly concerned with the following question: how should interest charges on goods in transit be computed when the goods travel at close to the speed of light? This is a problem because the time taken in transit will appear less to an observer traveling with the goods than to a stationary observer. A solution is derived from economic theory, and two useless but true theorems are proved. (JEL F10, F30)     

Election of vice-president and adding new members to representative bodies

 In Tanguiane (1991, 1993, 1994) we have introduced quantitative indicators of representativeness, with which we have estimated the capacity of individuals and limited groups to represent a collective preference. We have studied three forms of representation: (a) single representative (president); (b) cabinet which consists of representatives personally responsible for certain domains of competence (government); and (c) council which makes collective decisions by means by voting (parliament). In this paper we examine the appointment of president and vice-president. In our model it corresponds to the appointment of a cabinet with two members. We show that it may be impossible to make an optimal appointment successively, finding first the most representative president, and matching the vice-president afterwards. The only way which guarantees their optimal appointment, is choosing them together as a team. We prove, however, that successively chosen president and vice-president, as a cabinet with two members, have the indicators of representativeness greater than or equal to 75% of their maximal value. Besides we investigate a recursive construction of cabinets and councils by optimally adding new members one by one. We prove that the indicators of representativeness of such a recursively constructed cabinet with k members are greater or equal to (1–2^-k) ⋅ 100% of their maximal value. This estimate has the same exponent as that for the optimal cabinets, meaning that such a recursive construction provides, if not optimal, still rather good results. The recursive construction of representative councils is restricted to particular cases, so that an optimal council should be chosen simultaneously. In conclusion we discuss the applicability of the results obtained to real politics. Received: 27 December 1994/Accepted: 15 November 1995     

Consistency between tastes and values: A universalization approach

The object of this paper is to propose a consistency test for an individual involved in collective choice process. Collective choice processes considered in the paper are those that transform individuals ‘tastes’– which reflect the self-interested view point of the individuals – into (social) ranking of alternatives. In addition to her tastes, an individual has values about the way by which collective decision should be made. We distinguish two categories of such values. First, there are end-values that restrict the class of social rankings that the individual considers ethically acceptable. Second there are aggregation-values that specify the way by which the social ranking should depend upon the individuals tastes. The consistency test stands on an hypothetical operation of universalization of the individual tastes to everyone. Five illustrations of the potential usefulness of our approach for interpreting social choice theory and welfare economics are proposed. These illustrations deal with utilitarian aggregation in the presence of income inequality aversion, the so-called ‘ethics of responsibility’ and the aggregation of individual ranking of opportunity sets based on their freedom of choice. A discussion of the relevance of the consistency test for addressing the problem of ‘laundering’ individual preferences is also provided. Received: 25 June 1998/Accepted: 16 March 1999     

When is a family a family? Evidence from survey data and implications for family policy

This article examines the correspondence between common assumptions about the American family and actual patterns. The assessment is based on national data on individuals, households, and families. Findings indicate that the coresident nuclear model should be considereda model rather thanthe model of family. Past as well as current marital ties need to be considered in defining “family,” and divorce rather than death should be the expected cause of losing the main breadwinner in the family, except among elderly women. Parent-child ties to either young or adult children often span separate households. Coresidents can include individuals other than nuclear family members, and change rather than stability is the modal pattern in living arrangements. Rather than shaping concepts of the family from a single mold, policy makers and researchers are better advised to recognize the diversity and fluidity in family and household structures. Her major research interests include economics of the family, intergenerational transmission, intergenerational transfers, labor economics, and poverty and welfare. She received her Ph.D. in Economics from the University of Michigan in 1977.     

What is a problem?

Among others, the term “problem” plays a major role in the various attempts to characterize interdisciplinarity or transdisciplinarity, as used synonymously in this paper. Interdisciplinarity (ID) is regarded as “problem solving among science, technology and society” and as “problem orientation beyond disciplinary constraints” (cf. Frodeman et al.: The Oxford Handbook of Interdisciplinarity. Oxford University Press, Oxford, 2010). The point of departure of this paper is that the discourse and practice of ID have problems with the “problem”. The objective here is to shed some light on the vague notion of “problem” in order to advocate a specific type of interdisciplinarity: problem-oriented interdisciplinarity. The outline is as follows: Taking an ex negativo approach, I will show what problem-oriented ID does not mean. Using references to well-established distinctions in philosophy of science, I will show three other types of ID that should not be placed under the umbrella term “problem-oriented ID”: object-oriented ID (“ontology”), theory-oriented ID (epistemology), and method-oriented ID (methodology). Different philosophical thought traditions can be related to these distinguishable meanings. I will then clarify the notion of “problem” by looking at three systematic elements: an undesired (initial) state, a desired (goal) state, and the barriers in getting from the one to the other. These three elements include three related kinds of knowledge: systems, target, and transformation knowledge. This paper elaborates further methodological and epistemological elements of problem-oriented ID. It concludes by stressing that problem-oriented ID is the most needed as well as the most challenging type of ID.     

The replacement principle in economies with indivisible goods

 We consider the problem of allocating a list of indivisible goods and some amount of an infinitely divisible good among agents with equal rights on these resources, and investigate the implications of the following requirement on allocation rules: when the preferences of some of the agents change, all agents whose preferences are fixed should (weakly) gain, or they should all (weakly) lose. This condition is an application of a general principle of solidarity discussed in Thomson (1990b) under the name “replacement principle”. We look for selections from the no-envy solution satisfying this property. We show that in the general case, when the number of objects is arbitrary, there is no such selection. However, in the one-object case (a single prize), up to Pareto-indifference, there is only one selection from the no-envy solution satisfying the property. Such a solution always selects an envy-free allocation at which the winner of the prize is indifferent between his bundle and the losers’ common bundle. Received: 15 May 1995 / Accepted: 5 June 1996     

The replacement principle for the provision of multiple public goods on tree networks

This article considers the provision of two public goods on tree networks where each agent has a single-peaked preference. We show that if there are at least four agents, then no social choice rule exists that satisfies efficiency and replacement-domination. In fact, these properties are incompatible, even if agents’ preferences are restricted to a smaller domain of symmetric single-peaked preferences. However, for rules on an interval, we prove that Miyagawa’s (Soc Choice Welf 18:527–541, 2001) characterization that only the left-peaks rule and the right-peaks rule satisfy both of these properties also holds on the domain of symmetric single-peaked preferences. Moreover, if agents’ peak locations are restricted to either the nodes or the endpoints of trees, rules exist on a subclass of trees. We provide a characterization of a family of such rules for this tree subclass.     

Can faster income growth reduce well-being?

In his book Luxury Fever: Why Money Fails to Satisfy in an Era of Excess (1999) economist Robert Frank describes a number of significant trends in the U.S., and to a lesser extent in other industrial economies, since the late 1970s: rapidly rising incomes, for those at the upper end of the income scale, increasing hours of work, and increased consumerism (share of consumption of ‘status goods’). We demonstrate that the first development can parsimoniously account for the latter two. Our novel specification of the utility function simultaneously incorporates a relative-consumption effect for status goods and non-homotheticity of preferences between status and non-status goods, and we also allow for endogenous labour–leisure choice. It is possible that well-being has declined, notwithstanding the faster income growth, or at least not risen pari passu with the growth in earnings. Comparisons are made with other studies, and policy implications briefly discussed.

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