Optimal income taxation with Kalai wage bargaining and endogenous participation

This paper characterizes the optimal redistributive tax schedule in a search–matching framework where (voluntary) nonparticipation and (involuntary) unemployment are endogenous and wages are determined by proportional bargaining à la Kalai. The optimal employment tax rate is given by an inverse elasticity rule. This rule depends on the global response of the employment rate, which depends not only on the participation (labor supply) responses, but also on the vacancy posting (labor demand) responses and on the product of these two responses. For plausible values of the parameters, our matching environment induces much lower employment tax rates than the usual competitive model with endogenous participation only. However, optimal employment tax rates are larger (in absolute value) when a given level of the global elasticity of employment is more due to search frictions and less due to participation responses.     

On the tournament equilibrium set

An example is provided showing that Schwartz's tournament equilibrium set is not identical to the minimal covering set of Dutta.     

The causal effect of social capital on income: A new analytic strategy

This study identifies three groups of job seekers in terms of the channels used to search for jobs: the formal channel involving only official procedures to obtain a job, the informal channel using only social contacts to obtain a job, and the joint channel leveraging both social contacts and official procedures. The analysis of a national sample survey of China shows that joint channel users, due to their relatively higher level of social capital, not only make more job search attempts but also obtain higher income than formal channel users. Meanwhile, joint channel users, because of their relative advantages in both human capital and social capital, not only make more job attempts but also obtain higher income than informal channel users. The two comparisons offer a new strategy to test the causal role social capital plays in labour market success, regardless of whether social capital is exogenous or endogenous to human capital.     

On the equilibrium of voting games with abstention and several levels of approval

We study the core of “(j, k) simple games”, where voters choose one level of approval from among j possible levels, partitioning the society into j coalitions, and each possible partition facing k levels of approval in the output (Freixas and Zwicker in Soc Choice Welf 21:399–431, 2003). We consider the case of (j, 2) simple games, including voting games in which each voter may cast a “yes” or “no” vote, or abstain (j = 3). A necessary and sufficient condition for the non-emptiness of the core of such games is provided, with an important application to weighted symmetric (j, 2) simple games. These results generalize the literature, and provide a characterization of constitutions under which a society would allow a given number of candidates to compete for leadership without running the risk of political instability. We apply these results to well-known voting systems and social choice institutions including the relative majority rule, the two-thirds relative majority rule, the United States Senate, and the United Nations Security Council.     

Union-nonunion wage differentials and the functional distribution of income: Some simulation results from a general equilibrium model

During the past two decades, a number of studies have established the ability of unions to obtain wages for their members that exceed the payment to similar but nonunionized workers. This article investigates empirically the impact that this wage differential has on the real incomes of union labor, nonunion labor, and capital. The analysis is accomplished by solving explicitly a numerically specified general equilibrium system with and without the union wage premium. Comparison of real factor incomes in each equilibrium yields the desired information. The findings indicate that union labor gains as a result of the differential, while nonunion labor and capital lose. This outcome is realized both in terms of real income levels and in a redistributive sense. I would like to thank Nick Carlozzi and Aris Protopapadakis for valuable comments and Mary Agnes McPeak for excellent research assistance. Remaining errors are my responsibility alone.     

Decisions with endogenous frames

We develop a model of decision-making with endogenous frames and contrast the normative implications of our model to those of choice theoretic models in which observed choices are determined by exogenous frames or ancillary conditions. We argue that, frames, though they may be taken as given by the decision-maker at the point when choices are made, matter for both welfare and policy purposes.     

Bivariate income distributions with lognormal conditionals

In this paper, the most general bivariate distribution with lognormal conditionals is fully characterized, using the methodology proposed by [3]. The properties of the new family are studied in detail, including marginal and conditional distributions, regression functions, dependence measures, moments and inequality measures. The new distribution is very broad, and contains as a particular case the classical bivariate lognormal distribution. Several subfamilies are studied and a generalization of the basic model is discussed. Finally, we present an empirical application. We estimate and compare the basic model proposed in the paper with a classical model, using data from the European Community Household Panel in different periods of time.     

Social welfare functions with a reference income

A foundation of social welfare functions is considered with a given reference income (or utility): relative and absolute invariance of the underlying welfare ordering are defined to hold for societies with either all members having incomes below the reference income or all members having incomes above the reference income. These conditions, alongside standard properties of a social preference relation, provide reference income dependent extensions of traditional classes of welfare functions. Dalton’s principle of positive transfers is incorporated, under which relative invariance leads to a class of piecewise (rank-)linear welfare functions, including the class of generalized Gini social welfare functions as a special case. To ensure quasi-concavity a new preference condition is proposed, which has the interpretation of aversion to income dropping below the reference income.     

Using equivalent income of equivalent adults to rank income distributions

The paper proposes the consistent and rigorous use of equivalence scales for households of different size. Equivalence scales are employed for deriving the income of an equivalent adult representing the household and for weighting the different household types. The proceeding takes into account the possibilities and the needs of different household types at the same time and seems to be adequate if income distributions are to be compared in terms of social welfare or inequality. The approach allows to define and to investigate the usual concepts (Lorenz curve, Lorenz dominance, social welfare function, progressive transfers etc.) for heterogeneous populations. They can be interpreted in an obvious way, and the results, well known for homogeneous populations, can be generalized. Furthermore, some unpleasant and unsatisfactory paradoxa or impossibility results, which can be found in the literature, vanish in the framework considered. Received: 7 March 1997/Accepted: 4 November 1997     

When winning is the only thing: pure strategy Nash equilibria in a three-candidate spatial voting model

It is well known that there are no pure strategy Nash equilibria (PSNE) in the standard three-candidate spatial voting model when candidates maximize their share of the vote. When all that matters to the candidates is winning the election, however, we show that PSNE do exist. We provide a complete characterization of such equilibria and then extend our results to elections with an arbitrary number of candidates.     

Information theoretic approaches to income density estimation with an application to the U.S. income data

The size distribution of income is the basis of income inequality measures which in turn are needed for evaluation of social welfare. Therefore, proper specification of the income density function is of special importance. In this paper, using information theoretic approach, first, we provide a maximum entropy (ME) characterization of some well-known income distributions. Then, we suggest a class of flexible parametric densities which satisfy certain economic constraints and stylized facts of personal income data such as the weak Pareto law and a decline of the income-share elasticities. Our empirical results using the U.S. family income data show that the ME principle provides economically meaningful and a very parsimonious and, at the same time, flexible specification of the income density function.     

Impact of retirement type on income for people with disabilities

The purpose of this paper is to investigate the impact of involuntary retirement on the economic security of persons with a disability. Very little research examines the economic consequences to forced retirement and no research focuses on persons with disabilities who have a higher rate of involuntary retirement than the general population. Analysing the 2006 Canadian Participation and Activity Limitation Survey, we find that persons with a disability who involuntarily retire have lower median personal and household incomes and they are more likely to be under the low-income cut-off point than those who retire voluntarily. When socio-demographic, socio-economic and geographical characteristics are controlled; those who retired involuntarily are more likely to be under the low-income cut-off point than those whose retirement was voluntary. Further, those who retired involuntarily are more likely to receive disability benefits whereas those who retired voluntarily are more likely to receive retirement income. The authors argue for employers and governments to implement accommodation in the workplace and flexible employment opportunities so that more persons with disabilities are able to continue in their employment for as long as possible.     

The role and significance of endogenous firing costs in a matching model with endogenous job destruction

Traditional models of the labor market assume fixed firing costs. This paper explores the implications of variable firing costs, building this new assumption into a matching model with endogenous job destruction. The available evidence on the outcomes of cases brought to labor courts suggests that firing costs are negatively related with labor market tightness. In such a case, we may no longer invoke “rigidities” on labor markets as the cause of their poor performance. Our model yields three interesting results. First, labor markets may have multiple equilibria that cannot be Pareto-ordered; each with its own configuration in terms of average duration of unemployment and filled jobs, as well as employment protection. Second, the variability of firing costs produces a positive externality affecting the stability properties of these equilibria. Finally, the two externalities affect the efficiency of the social optimum, modifying the Hosios [Hosios, A.J., 1990. On the efficiency of matching and related models of search and unemployment. Review of Economic Studies 57, 279–298] condition. We use these results to interpret the recent history of European unemployment.     

On the characterization and economic evaluation of income mobility as a process of distributional change

The paper employs a rank-dependent formulation of the social welfare function with time-separable utilities to evaluate the economic consequences of the mobility process underlying the transformation of the income distribution over time. The resultant class of measures can be decomposed either in terms of structural and exchange mobility or in terms of vertical and horizontal mobility, thereby encompassing two major approaches in the literature. Illustrative results show that income mobility in the USA was both less pro-poor in absolute terms and more horizontally inequitable than in Germany, but that the latter did not translate into higher exchange mobility given higher levels of absolute inequality and the vertical stance of the growth process.