Moody choice

If choices depend on the decision maker's mood, is the attempt to derive any consistency in choice doomed? In this paper we argue that, even with full unpredictability of mood, the way choices from a menu relate to choices from another menu exhibits some structure. We present two alternative models of 'moody choice' and show that, in either of them, not all choice patterns are possible. Indeed, we characterise both models in terms of consistency requirements of the observed choice data.

The marginal utility of money: A modern Marshallian approach to consumer choice

We reformulate neoclassical consumer choice by focusing on lambda, the marginal utility of money. As the opportunity cost of current expenditure, lambda is approximated by the slope of the indirect utility function of the continuation. We argue that lambda can largely supplant the role of an arbitrary budget constraint in partial equilibrium analysis. The result is a better grounded, more flexible and more intuitive approach to consumer choice.

Tax Structure, Growth and Welfare in the UK

This paper studies the quantitative implications of changes in the composition of taxes for long-run growth and expected lifetime utility in the UK economy over 1970-2005. Our setup is a dynamic stochastic general equilibrium model incorporating a detailed scal policy struc- ture, and where the engine of endogenous growth is human capital accumulation. The government s spending instruments include pub- lic consumption, investment and education spending. On the revenue side, labour, capital and consumption taxes are employed. Our results suggest that if the goal of tax policy is to promote long-run growth by altering relative tax rates, then it should reduce labour taxes while simultaneously increasing capital or consumption taxes to make up for the loss in labour tax revenue. In contrast, a welfare promoting policy would be to cut capital taxes, while concurrently increasing labour or consumption taxes to make up for the loss in capital tax revenue.

The demand for intensity versus frequency of alcohol consumption: Evidence from rural Australia

This paper develops a theoretical model for the demand of alcohol where intensity and frequency of consumption are separate choices made by individuals in order to maximize their utility. While distinguishing between intensity and frequency of consumption may be unimportant for many goods, this is clearly not the case with alcohol where the likelihood of harm depends not only on the total consumed but also on the pattern of use. The results from the theoretical model are applied to data from rural Australia in order to investigate the factors that affect the patterns of alcohol use for this population group. This research can play an important role in informing policies by identifying those factors which influence preferences for patterns of risky alcohol use and those groups and communities who are most at risk of harm.

Are two tax rates better than one?

Abstract: Should two–band income taxes be progressive given a general income distribution? We provide a negative answer under utilitarian and max-min welfare functions. While this result clarifies some ambiguities in the literature, it does not rule out progressive taxes in general. If we maximize total or weighted utility of the poor, as often intended by the society, progressive taxes can be justified, especially when the ‘rich’ are very rich. Under these objectives we obtain new necessary conditions for progressive taxes, which only depend on aggregate features of income distributions. The validity of these conditions is examined using plausible income distributions.

Work Hours, Social Value of Leisure and Globalisation

We examine how openness interacts with the coordination of consumption-leisure decisions in determining the equilibrium working hours and wage rate when there are leisure externalities (e.g., due to social interactions). The latter are modelled by allowing a worker’s marginal utility of leisure to be increasing in the leisure time taken by other workers. Coordination takes the form of internalising the leisure externality and other relevant constraints (e.g., labour demand). The extent of openness is measured by the degree of capital mobility. We find that: coordination lowers equilibrium work hours and raises the wage rate; there is a U-shaped (inverse-U-shaped) relationship between work hours (wages) and the degree of coordination; coordination is welfare improving; and, the gap between the coordinated and uncoordinated work hours (and the corresponding wage rates) is affected by the extent and nature of openness.

A Salience Theory of Choice Errors

We study a psychologically based foundation for choice errors. The decision maker applies a preference ranking after forming a 'consideration set' prior to choosing an alternative. Membership of the consideration set is determined both by the alternative specific salience and by the rationality of the agent (his general propensity to consider all alternatives). The model turns out to include a logit formulation as a special case. In general, it has a rich set of implications both for exogenous parameters and for a situation in which alternatives can a¤ect their own salience (salience games). Such implications are relevant to assess the link between 'revealed' preferences and 'true' preferences: for example, less rational agents may paradoxically express their preference through choice more truthfully than more rational agents.

Balanced Budget Government Spending in a Small Open Regional Economy

This paper investigates the impact of a balanced budget fiscal policy expansion in a regional context within a numerical dynamic general equilibrium model. We take Scotland as an example where, recently, there has been extensive debate on greater fiscal autonomy. In response to a balanced budget fiscal expansion the model suggests that: an increase in current government purchase in goods and services has negative multiplier effects only if the elasticity of substitution between private and public consumption is high enough to move downward the marginal utility of private consumers; public capital expenditure crowds in consumption and investment even with a high level of congestion; but crowding out effects might arise in the short-run if agents are myopic.