Showing papers on "Consumption (economics) published in 1969"

The Effects of Property Taxes and Local Public Spending on Property Values: An Empirical Study of Tax Capitalization and the Tiebout Hypothesis

Abstract: The purpose of this paper is to present some empirical findings on a problem for which we presently possess only the scantest of evidence: the effects of local public budgets on property values in the community. There do exist several studies of the incidence of property taxes, the mainstay of local revenue systems in the United States, but in nearly all cases these studies are based on assumptions concerning the degree to which the tax on various components of property is capitalized. We have, however, little hard empirical evidence indicating whether property taxes are in fact capitalized and, if so, to what extent.1 This deficiency might not seem very serious if we had a single, compelling theory of the shifting and incidence of property taxes, a theory which suggested a definite solution to the problem. The truth, however, is that the theory of the shifting of property taxes points to a wide range of possibilities: under some circumstances the whole of the tax may be reflected in a reduced rental income (and hence lower property values) for landlords, while in other situations the tax may result primarily in increased rents to tenants, with little impact on the market value of property. Some years ago in this journal, Tiebout (1956) developed a formal model involving consumer location in accord with preferences for local public goods and services. He suggested that at least at a theoretical level we can envision a system in which we get something resembling a market solution to the production and consumption of local public goods. Very simply, Tiebout's world is one in which the consumer "shops" among different

Conditional Demand Functions and Consumption Theory

Abstract: Introduction, 60. — I. Conditional demand functions, 61. — II. Conditional demand functions and ordinary demand functions, 64. — III. A new decomposition of the cross price derivatives, 65. — IV. Consumer behavior under straight rationing, 70. — V. Hicksian aggregation, 74. — VI. The Le Chatelier Principle and beyond, 75.

Optimal investment and consumption strategies under risk, an uncertain lifetime, and insurance*

Abstract: sumption in period j, such that either the risk aversion index -u"(x)/u'(x), or the risk aversion index -xu"'(x)/u'(x), is a positive constant for all x > 0. In a second paper [6], it was further shown that this model, developed with the individual in mind, also gives rise to an induced theory of the firm under risk for the same class of utility functions. In the foregoing model, it was assumed that the individual's horizon was infinite (or known with certainty). In this paper, we consider the same basic model with three modifications. First, we postulate that the individual's, lifetime is a random variable with a known probability distribution. Second, we introduce a utility function intended to represent the individual's bequest motive. Third, we offer the individual the opportunity to purchase insurance on his life. It is found that when some or all of these modifications are made, all of the more important properties possessed by the optimal consumption and investment strategies under a certain horizon are preserved, albeit only under special conditions. In Section 2, the various components of the decision process are constructed. In the earlier model, the individual's objective was assumed to be the maximization of expected utility from consumption over time. Here, we postulate, more generally, that his objective is to maximize expected utility from consumption as long as he lives and from the bequest left upon his death. As before, the individual's resources are assumed to consist of an initial capital position (which may be negative) and a non-capital income stream. The latter, which may possess any time-shape, is assumed to be known with certainty and to terminate upon his death. In addition to insurance available at a "fair'" rate, the individual faces both financial opportunities (borrowing and lending) and an arbitrary number of productive investment opportunities. The interest rate is presumed to be known but may have any time-shape. The returns from the productive opportunities are assumed to be random variables, whose probability distributions may differ from period to period but are assumed to satisfy the "no-easy-money" condition. While no limit is placed on borrowing, the individual is required to be solvent at the time of his death with

The economics of moral hazard: further comment

Abstract: : The document considers the effect of hospital insurance upon the consumption of those items in the consumer's utility function which relate to the 'quality' as well as the quantity of care consumed and suggests a means of minimizing the distorting influence of such insurance. It may also be of general relevance to the economics of insurance. (Author)

National saving rates and population growth: a new model and new evidence.

Abstract: This study presents new analysis and evidence on the link between population growth and national saving Analysis was based on the variable rate-of-growth effect model (Mason 1981; Fry and Mason 1982) which distinguishes 2 population growth effects: the rate of growth effect and the dependency effect The papers 1st section reviews previous research on the saving population growth link including applications of the variable rate-of-growth effect model Its 2nd part presents an extension of the variable rate-of-growth effect model by linking factors determining the number of children reared to the budget shares devoted to childbearing and in turn to the national saving rate Part 3 presents estimates from international cross-section data covering the 1960-80 period The final section uses the neoclassical growth model to show circumstances under which the rate of growth effect dominates the dependency effect reversing the relationship between population growth and saving Available evidence from the international cross-section supports the proposition that a higher dependency ratio leads to lower saving particularly among countries with moderate to high rates of income growth At the mean rate of growth observed over the last 2 decades for the 70 countries analyzed a decline from a high to a low childbearing regime generated an increase in the net national saving rate of about 5% -- nearly a 50% increase The results reported also addressed the magnitude and validity of the equivalent adult consumer unit Aggregate consumption data imply an equivalent adult consumer unit of about 1/3 The analysis implies that simulation models that are based on equivalent adult consumer unit can provide useful insights about the relationship between population growth and aggregate consumption and saving rates The analysis fails to fully resolve the issue of the relative importance of the rate of growth and dependency effects It is based on the neoclassical growth model for which the equilibrium rate of growth of national income increases point for point with an increase in the rate of growth of population Given the long periods required to adjust from one equilibrium to another the steady-state results of the neoclassical model may have limited relevance to the design and evaluation of development and population policy Although the model proposed clearly delineates the link between children household saving and national saving the role ascribed to children is limited Only that children require household resources for their support is acknowledged

Welfare Economics and Public Subsidies to the Arts

Abstract: Subsidizing the Arts involves the same kind of issues as subsidizing particular industries or services in the economy, however distasteful this may seem to those who are conditioned to think in terms of a moral hierarchy in the ordering of consumption expenditure. In this analysis, attention is confined to two arguments for subsidization which are derived from the existence of 'market failure', i.e. the recognition that the strict Paretian assumptions of divisibility of goods and absence of externalities of production and consumption are not met with in practical life. A particular aspect of the problem of indivisibility which is relevant to the subsidization of the Arts is the taking account of the welfare of future generations, that is to say the welfare of those whose interests cannot be directly expressed at present through the exercise of their own preferences in the market. It is assumed that we are not interested in the contribution of Arts to stabilization or growth. Full employment of resources is given and we ignore the possibility that subsidizing the Arts might be a possible way of inducing people to work harder and more efficiently than if cultural activities were left solely to the judgement of the market. Cultural paternalism which might be justified on the grounds that the community does not know what is good for it, is ruled out. Apart from any predisposition of the author to oppose paternalism, the assertion of imposed value judgements is too easy a way of deriving support for public intervention designed to give the public not what it wants but what it ought to have! Before we can proceed to answer the question, should we subsidize the Arts, and how it might be done, we need information on two matters. The first is the scope of the 'industry'. Here I shall consider only the performing arts, although much of the argument could be applied to the visual arts. I shall also assume that

The Substitution Effects of Transportation Costs

Abstract: When a commodity is consumed at the production center and also at various distances from the center, it is alleged that the amount shipped for consumption will contain a greater proportion of high-quality output than will be found in the amount kept for consumption at the production center. It is said, for example, that New Yorkers consume a greater proportion of good oranges than do Californians, that Asians import a greater proportion of expensive American cars than do consuming areas closer to Detroit, that "seconds" are more heavily consumed near the place of manufacture than farther away, and that one must be more careful in buying Italian leather goods in Italy than in the United States (Alchian and Allen, 1964, p. 74). Students are frequently asked to explain the phenomenon in economics examinations, and the question has found its way into an advanced text on economic theory (Stigler, 1966a, p. 103). The following quotation from University Economics provides what appears to be the "accepted" solution to the problem.

The implications of alternative saving and expectations hypotheses for choices of technique and patterns of growth

Abstract: It has become increasingly clear that there are serious problems with the concept of aggregate capital. It is now known, for instance, that, if there are many vintages of machines, the output of the economy can be described by a simple neoclassical production function with an aggregate capital stock if and only if technical change is purely capital augmenting (Fisher, 1965); that in steady states consumption per capita may not be a monotonic function of the rate of interest, even for rates of interest greater than the rate of growth; and that the value of the capital stock per man (using any price system) may not be monotonic in r (Wicksell effects) (Champernowne, 1953-54). The heterogeneity of capital goods, moreover, raises new problems for the dynamic behavior of the economy. Investment must be allocated, and to do this firms must form expectations of future prices, wages, and interest rates. The purpose of this paper is to investigate in detail the dynamics of a simple model with heterogeneous capital goods under alternative assumptions about expectations formation and saving. Before investment takes place, the entrepreneur has a choice over a large number (to be precise, a continuum) of types of machines; those which require more resources today require less labor per unit of output in the future. But once the machine has been constructed, it cannot be altered. This is just the exante smooth substitutability-ex post rigid complementarity model (or the putty-clay model), alternative versions of which have been studied by Johansen (1959) and Solow (1962). (See also Phelps, 1963; Akerlof, 1967; Sheshinski, 1967; and Stiglitz, 1968.) This model raises, moreover, the interesting problem of economic obsolescence: machines may be con-

A Minimal Role of Government in Achieving Optimal Growth

Abstract: Paul Samuelson [5] [6] and Peter Diamond [2] have developed growth models in which the attempt by each economic unit to maximize its utility does not lead to a social optimum. It would be possible for all generations to consume more per capita, if economic growth were directed by an omniscient social planner. Their models are free from the usual sources of inefficiency encountered in price theory. They explicitly assume perfect competition, perfect foresight and no external economies or diseconomies. The purpose of this paper is to introduce government institutions which may have little foresight, which will not engage in central planning or use direct controls but whose existence will guarantee that the equilibrium solution will be optimal. I am interested in determining the minimal amount of government which is sufficient to produce long-run optimality. Our concern is with the Samuelson-Diamond model whose basic features may be briefly outlined. Two generations are alive at any time: a younger generation which works, and a retired generation. Population born at time t is (1 + n)t; and the participation rate is 100 per cent. of the younger generation. There are (1+ n)tl1 retired people who were born during the preceding period. The periods are of equal, but arbitrary, length. Savings of a worker are designed to maximize his lifetime utility; and his decision involves the substitution between future and present consumption, subject to a constraint. Let c1(t) be consumption of a worker during his youth and c2(t +1) his consumption during retirement one period later. Utility depends upon [c1(t), c2(t + 1)], the pattern of lifetime consumption. As an example, Diamond selected a utility function for the individual:

Student Family Size in Relation to Current and Expected Income

Abstract: Although the hypothesis that children can be viewed, as a form of consumption has been advanced for some time (Becker, 1960; Silver, 1965), empirical investigation of the hypothesis requires that account be taken of knowledge of birth control. It may be necessary to account for additional factors such as public financing of children's education and the possible effect of a rural background, in which children are more likely to perform productive activities. For a given level of birth control information, the desired number of children should depend not only on current income but also on expected future income, since parental outlays extend over a period of about twenty years. The hypothesis, then, is that children commit the parents to a long-run consumption expenditure which should in turn be a function not only of current income but also of long-run income. Further, it will be an assumption of this study that graduate students, as highly educated young adults, are homogeneous with respect to knowledge of birth control.

The Optimal Provision of Public Goods: A Comment

Abstract: In a recent issue of this Journal, Alan Williams (1966) presented an analysis of the optimality of public goods supply in a situation in which the public goods are produced by independently operating local governments. By appropriate reference to " hitherto neglected " income effects, he succeeded in demonstrating that it is possible for too much of the public good to be produced in the aggregate, even though each local government cannot extract payment for the benefits from its public good production which spill out onto other local government areas. The question under discussion is conceptually equivalent to the question of the direction of the distortion resulting under conditions of independent adjustment in a situation of reciprocal externalities of the separable variety,1 and Williams' analysis can be applied equally well to this case. Thus, if A's production of X reduces the total (but not marginal) cost of B's production of X, and B's production of X likewise reduces the total (but not marginal) cost of A's, Williams' result indicates that, where A and B act independently, oversupply of X may result. To those familiar with the work of Buchanan and Kafoglis (1963) and of Baumol (1964), this conclusion may not, in itself, be very surprising. What is perhaps more interesting is Williams' assertion that, although oversupply of public goods can occur in the aggregate, it is not possible for public goods consumption to be overexpanded in every local government area. Or, in the individual case, although too much of X may be produced in toto, simultaneous overproduction by A and B is impossible.2

Savings Deposits in the Definition of Money

Abstract: Empirical economic analysis requires precise definitions of the variables under study. This has been clearly brought out in the recent discussions regarding the relative abilities of autonomous expenditures and money in predicting income or consumption (see Friedman and Meiselman 1963, 1965; Hester 1964; Ando and Modigliani 1965; and DePrano and Mayer 1965). One of the by-products of the discussion was that the definitions of the variables used are important, and to a certain extent the results may be biased in favor of or against a particular theory by the manner in which the relevant variables are defined. In these studies, a great deal of attention was focused on the concepts of autonomous and induced expenditures, and relatively little was done (except by Friedman and Meiselman 1963) to solve the long-standing problem of the definition of money. It is, therefore, not surprising that in empirical research economists use a "narrow" (currency outside banks, plus demand deposits adjusted) as well as a "broad" (currency outside banks, plus all commercial bank deposits) definition of money. In recent years, arguments have been put forward by Gurley and Shaw (1956, 1960), and others inspired by their work, to further broaden the definition of money by including in it liabilities of nonbank financial intermediaries. Gurley and Shaw maintain that the liabilities of the nonbank financial intermediaries are close substitutes for money, and that the rapid growth of these liabilities in recent decades has had the effect of reducing the demand for money. On the other hand, Professor Friedman (1959) and his associates (Friedman and Meiselman 1963; and Friedman and Schwartz 1963) prefer the "broad" definition of money, and, on the basis of historical evidence, show that only commercial

Optimal educational investment program in an economic planning model

Abstract: This paper illustrates a possible way in which the planning of education may be brought within the field of general economic planning. It will not deal with all aspects and types of education: its focus is on the working age groups facing the real choice between going to school and to work. Both the young and old age-cohorts, having no such choice, will be left out. Furthermore, the education given is considered purely and simply as a capital good: its cultural, social, political, and other consumption utilities, important as they are, cannot be discussed. This omission may be made good by, say, treating universal primary education, not dealt with in the model, as "consumption" education politically determined and enforced by the state. As an investment good, education competes with other needs for scarce resources, in the "production" of trained manpower needed for further production and consumption. The problem is-what proportion of national product should be expended on education and what proportion of the working age population should be trained, such as to maximize social utility (U).1 The latter is a function of the level of consumption (C) which society enjoys at any

Consumption of Mass Media in Finland

Abstract: sons over the age of 15 representing the whole (adult) population. Even if the most advanced statistical methods (e.g. multivariate analyses) have been employed in elaboration of these audience data, it should be remembered that information obtained by survey research is rather limited in precision. Various methodological drawbacks (e.g. formulation of questions) always bias the map drawn by surveys of social reality. Therefore the results should be critically interpreted and only taken as a rough ’first step’ towards the final analysis. It should be also remembered that the audience research covered here represents but a limited part of communication research in general: the communicator and the message are completely missing from this approach. These latter aspects, too, have been studied in Finland, although not so systematically as the audience2; for example, the ideological coloring of the contents of the mass media and the different mass media as social institutions still largely remain in unexplored

Econometric Study of Monthly Consumption Expenditures in Rural Uttar Pradesh

Abstract: This study presents some evidence of monthly consumption functions in the rural areas of the North Indian State of Uttar Pradesh. Since this region constitutes one of the largest and least monetized in India, attention is specifically focused on the cash and kind (or non‐cash) components of (a) expenditure on food articles and (b) total consumption expenditure. Dynamic demand functions of a stock‐flow variety are obtained for these broad groups. It is shown that cash outlays act as an inventory‐adjustment mechanism whereas non‐cash expenditure indicates a habit formation process. This behavioral difference of rural households with respect to cash and non‐cash components of consumption expenditure has not yet been demonstrated and is regarded as one of the major results of this paper. With the use of a stock‐flow adjustment system, numerical estimates of the instantaneous and steady‐state equilibrium elasticities are derived with respect to total expenditure (a proxy for income) and prices.

Import strategy and growth under conditions of stagnant export earnings 1

Abstract: IN an article published in this journal some years ago, Professors K. N. Raj and A. K. Sen discussed the alternative patterns of growth open to a developing country which has no scope for increasing its export earnings.2 Their discussion was based on an interesting model of development, which emphasized the importance of rigidity in the domestic structure of production arising from non-transferability of capital between sectors and nonsubstitutability between inputs. It was also characterized by a greater degree of disaggregation than is common in theoretical models of development planning, distinguishing between investment goods which produce consumption goods (e.g. textile machines) and investment goods which produce investment goods (e.g. machine tools) and allowing for intermediate inputs. In the context of this model Raj and Sen examined the problem of allocating the limited available foreign exchange between competing uses-importing consumer goods, importing raw materials, importing machine tools and so on. To illustrate the choices open to the planning authority, they compared the time-paths of consumption output resulting from using this foreign exchange for alternative purposes. However, while this comparison was interesting, it did not by itself provide a complete solution to the planning problem. As was pointed out by Professor Bhagwati in a comment on their article,3 they have merely compared four arbitrary time-paths and the 'problem cannot be solved at all unless a complete mapping of the different possibilities is provided'. The aim of this note is to provide a more complete solution to the problem of allocating the available foreign exchange in the Raj-Sen model. The correct import policy can, of course, only be determined with reference to the objectives of the planning authority. In this note I shall consider two very different objectives and compare the resulting import policies. In contrast to Raj and Sen, who compare the consumption streams resulting from alternative policies, I shall be comparing the import policies which result from alternative objectives. The two objectives on which I shall concentrate are:

Experimental Analysis of Theory of Promotion at Point of Consumption

Abstract: This laboratory-type experiment examined and produced evidence of the effectiveness of promotion at the time of consumption, relative to pre- and post-consumption promotion, as a means of enhancing...

Aggregative Analysis of Food Consumption in Pakistan (Notes & Comments)

Abstract: In this study we shall examine the influence of the major determinants of food consumption, viz., level of per capita income, price structure, differences in preferences and availability of commodities. We shall analyse the con¬sumption pattern as revealed by consumer survey as well as food balance-sheet to point out any inconsistency between consumption as reported by consumers and availability of food as shown by food balance-sheet.