ALBERT

Notes: We show that the presence of sufficiently significant switching costs, which are increasing in the degree of product differentiation, generates an equilibrium configuration with maximal differentiation within the framework of a Hotelling model with linear transportation costs. The equilibrium with maximal differentiation offers a formalization of the idea that competing firms have noncooperative incentives to establish maximal switching cost barriers. The equilibrium incentives for commitments to high switching costs can be explained with poaching profits, which are increasing in the switching costs. Ex ante competition for market shares in period 1 is unable to eliminate these poaching profits.

Notes: We analyze competition between two private television channels that derive their profits from advertising receipts. These profits are shown to be proportional to total population advertising attendance. The channels play a sequential game in which they first select their profiles (program mixes) and then their advertising ratios. We show that these ratios play the same role as prices in usual horizontal differentiation models. We prove that whenever ads' interruptions are costly for viewers the program mixes of the channels never converge but that the niche strategies are less effective and that the channel “profiles” are closer as advertising aversion becomes stronger.

Notes: All-units discounts in retail contracts refer to discounts that lower a retailer's wholesale price on every unit purchased when the retailer's purchases equal or exceed some quantity threshold. These discounts pose a challenge to economic theory because it is difficult to understand why a manufacturer ever would charge less for a larger order if its intentions were benign. In this paper, we show that all-units discounts may profitably arise absent any exclusionary motive. All-units discounts eliminate double marginalization in a complete information setting, and they extract more profit than would a menu of two-part tariffs in the standard incomplete information setting with two types of buyers. All-units discounts may improve or may reduce welfare (relative to menus of two-part tariffs) depending on demand parameters.

Notes: This paper is concerned with communication within a team of players trying to coordinate in response to information dispersed among them. The problem is nontrivial because they cannot communicate all information instantaneously but have to send longer or shorter sequences of messages, using coarse codes. We focus on the design of these codes and show that members may gain compatibility advantages by using identical codes and that this can support the existence of several, more or less efficient, symmetric equilibria. Asymmetric equilibria may exist only if coordination across different sets of members is of sufficiently different importance. The results are consistent with the stylized fact that firms differ even within industries and that coordination between divisions is harder than coordination inside divisions.

Notes: We analyze optimal patent design when innovators can rely on secrecy to protect their innovations. Secrecy has no fixed term but does not preclude accidental disclosure nor independent creation by other inventors. We derive the optimal scope of the rights conferred to such second inventors, showing that if the patent life is set optimally, second inventors should be allowed to patent and to exclude first inventors who have relied on secrecy. We then identify conditions under which it is socially desirable to increase patent life as much as is necessary to induce first inventors to patent. The circumstances in which it is preferable that they rely on secrecy seem rather limited.

Notes: We provide a novel explanation as to why forming an alliance of buyers (or sellers) across separate markets can be advantageous when input prices are determined by bargaining. Our explanation helps to understand the prevalence of buyer cooperatives among small and medium-sized firms.

Notes: Recent developments in information technology (IT) have resulted in the collection of a vast amount of customer-specific data. As IT advances, the quality of such information improves. We analyze a unifying spatial price discrimination model that encompasses the two most studied paradigms of two-group and perfect discrimination as special cases. Firms use the available information to classify the consumers into different groups. The number of identifiable consumer segments increases with the information quality. Among our findings (1) when the information quality is low, unilateral commitments not to price discriminate arise in equilibrium; (2) after a unique threshold of information precision such a commitment is a dominated strategy, and the game becomes a prisoners' dilemma; and (3) equilibrium profits exhibit a U-shaped relationship with the information quality.

Notes: In the context of (one-sided) delegated bargaining, we analyze how a principal (a seller) should design the delegation contract in order to provide proper incentives for her delegate (an intermediary) and gain strategic advantage against a third party (a buyer). We consider situations in which there are both moral hazard and adverse selection problems in the delegation relationship and where the seller tries to gain strategic advantage by imposing a minimum price above which she pays the delegate a commission. It is shown that incentives and commitment are substitutes. A low-type agent is given less discretion in dealing with the buyer and weaker incentives, while a high-type agent is given more discretion and stronger incentives.

Notes: This paper sutudies the role of debt in committing a seller not to trade at a low price. We consider a discrete-time finite-horizon buyer–seller relationship. The seller makes an upfront relationship-specific investment, which is financed with debt. Debt then is repaid gradually to mitigate the hold-up risk. Even though debt is renegotiable, under the assumption that with a small probability renegotiation may fail and may lead to inefficient liquidation, debt still can be used as a commitment device. We solve for renegotiation proof dynamic debt contracts that are optimal for the seller and show that debt is repaid over the entire course of the relationship with declining repayments.

Notes: Existing models of the principal–agent relationship assume the agent works only under extrinsic incentives. However, many observed agency contracts take the form of a fixed payment. For such contracts to work, the principal must trust the agent to work in the absence of incentives. I show that agency fosters the advent of intrinsic motivation and trustworthy behavior. Three distinct motivational schemes are analyzed: norms, ethical standards, and altruism. I identify conditions under which these mechanisms arise and show how they promote trust. The analysis alters several important predictions of conventional models: (1) Better outcomes may ensue in highly uncertain environments; (2) the principal is better off the more the agent is risk averse; and (3) larger equilibrium extrinsic incentives need not be associated with larger effort or larger total surplus.

Notes: This paper shows that a multiproduct firm may find it optimal not to delegate the sales of all products and therefore to employ different distribution channels for different products. It faces the following trade-off: There is a strategic effect associated with delegation, but if both products' sales are delegated, intrafirm competition is not internalized. By delegating the sales of just one of the products while selling the other product directly—partial delegation—the multiproduct manufacturer strikes just the right compromise: The externalities between its owns products are internalized partially while a strategic advantage is achieved against its rival single-product manufacturer. Partial delegation also holds if both products are sold by a common retailer; it dominates full delegation when both manufacturers are multiproduct firms.

Notes: Recent research finds that firms investing abroad tend to agglomerate with other foreign entrants. Yet firms often invest multiple times within the same host country, which raises the question of whether firms agglomerate with their competitors' or their own prior investments. Collocation's attractiveness also may vary as a firm's entry motives evolve. The activities of prior and present investments often differ—initial investment may be for distribution while later ones might be for manufacturing. For Japanese investment into the United States in the electronics sector from 1980 to 1998, we find that firms tend to collocate only with their own prior investments. The exception is firms with little of their own experience, who tend to collocate with competitors. These results demonstrate the importance of firm heterogeneity in determining agglomeration behavior.

Notes: This paper seeks to understand why improved information technology (IT) might strengthen the case for decentralization, as recent empirical work suggests. We study a firm with a headquarters and two managers, each of whom gathers information about her changing local environment. The firm earns a gross profit that depends on actions taken as well as the current local environments. More information permits better actions, and information-gathering costs drop as IT improves. When the firm is centralized, information-gathering expenditures are first best, but after the firm decentralizes, each manager becomes a self-interested player of a “sharing game” in which she collects a share of gross profit and bears the cost of her chosen information-gathering activities. The firm's actions are determined by the information gathered at the equilibria of the game. As a result, the firm experiences a decentralization penalty, namely the change in net profit (gross profit minus informational costs) after decentralizing. If the penalty is small, then it is outweighed by the advantages of decentralizing—the vanishing of monitoring costs and perhaps the improved motivation of a decentralized manager's staff. To gather information a manager chooses (once and for all) a partitioning of her possible local environments and then searches to find the set in which her current environment lies. Our main measure of a manager's information cost is a technology parameter, θ, times the number of sets in her chosen partitioning. A second measure is θ times the partitioning's “Shannon content,” which may be interpreted as average search time when search is efficient. We ask whether improved IT, i.e., a drop in θ, indeed lowers the decentralization penalty. We obtain a strongly affirmative answer to this question for both cost measures in a class of examples and a mixed answer when we generalize so as to preserve some of the key properties of those examples. In a parallel manner we explore another conjecture suggested in the empirical literature, namely that better IT raises the coordination benefit, which we define as the increase in net profit when the firm bases its actions on pooled information, rather than letting each action variable depend on the information gathered by just one manager.

Notes: This paper analyzes the structure of retail markets by highlighting the differential pattern exhibited across local markets by two different types of firm organization: chain stores versus stand-alone stores. Data from retail alcoholic beverage industry in California suggest that the number of chain stores is proportional to city size. Further evidence on the sales of establishments indicates that average size of a stand-alone store virtually is invariant to city size, whereas chain stores appear to get larger as city size increases. Theories consistent with these findings are discussed.

Notes: In differentiated product markets where consumer preferences are characterized by brand loyalty, an important role for advertising may be to overcome brand loyalty by encouraging consumers to switch to less familiar brands. Using a scanner panel dataset of breakfast-cereal purchases, I find evidence consistent with the hypothesis that advertising counteracts the tendencies of brand loyalty toward repeat purchasing. Equivalently, advertising reduces switching costs in this market. Furthermore, counterfactual experiments demonstrate that in markets with brand loyalty, advertising is an attractive and effective option—relative to alternative promotional activities, such as price discounts—of stimulating demand for a brand.

Notes: Durable-goods producers frequently choose to monopolize the maintenance markets for their own products. This paper shows that, similar to leasing, one reason a firm may employ this practice is that it reduces or even eliminates problems due to time inconsistency. We first demonstrate this result in a setting closely related to Bulow's (1982) classic analysis of durable-goods monopoly. We then show the result in a setting similar to those considered in Waldman (1996, 1997) and Hendel and Lizzeri (1999), in which new and used units are imperfect substitutes. The paper also discusses alternative explanations for the phenomenon.

Notes: While selling an existing product, a durable-goods monopolist may develop a new, improved product. The firm must consider the interaction between its intertemporal pricing and research and development (R&D) decisions. The interactions show a sharp dichotomy depending on pricing regimes. When it is optimal for the firm to continue to sell the old model along with the new model, the interactions disappear. However, when it is optimal for the firm to discontinue the sale of the old model after introducing the new model, the firm will face a time-inconsistency problem in its R&D decision.

Notes: We analyze investment by a population of hyperbolic discounting entrepreneurs. In order to avoid inefficient procrastination, agents with good prospects about their chances of success may choose to forego free information and to invest boldly. This explains an excessive level of investment in the economy. Building on this observation, we show that low risk-free interest rates favor bold entrepreneurship and entry mistakes. Furthermore, public intervention can be socially desirable: Forcing agents to acquire information before deciding whether to invest may reduce competitive interest rates and may be beneficial for all individuals in the economy.〈blockFixed type="quotation"〉And thus the native hue of resolution 
Is sicklied o'er with the pale cast of thought, 
And enterprises of great pith and moment 
With this regard their currents turn awry, 
And lose the name of action. 
          Hamlet, Act 3: Scene 1.

Notes: Observers routinely claim that the Japanese government of the high-growth 1960s and 1970s rationed and ultimately directed credit. It barred domestic competitors to banks, insulated the domestic capital market from international competitive pressure, and capped loan interest rates. In the resulting credit shortage, it promoted industrial policy by rationing credit. As much as the government purported to ration and to direct credit, it apparently accomplished nothing of the sort. It did not block domestic rivals to banks successfully, did not insulate the market from international forces, and did not set maximum interest rates that bound. Using evidence on loans to all 1,000-odd firms listed on Section 1 of the Tokyo Stock Exchange from 1968 to 1982, we find that observed interest rates reflected borrower risk and mortgageable assets and that banks did not use low-interest deposits to circumvent any interest caps. Instead, the loan market seems to have cleared at the nominal rates. We follow our empirical inquiry with a case study of the industry to which the government tried hardest to direct credit: ocean shipping. We find no evidence of credit rationing. Despite the government programs to allocate capital, nonconformist firms funded their projects readily outside authorized avenues. Indeed, they funded them so readily that the nonconformists grew with spectacular speed and earned their investors enormous returns.

Notes: In many markets, firms are able to conduct discriminatory strategies based on whether a customer prefers a competitors' product or their own. This article considers the impact of such discrimination in duopoly models in which firms set prices and conduct precontract-customization efforts for some customers. We identify two effects: (1) The ability to conduct preference-based discrimination increases equilibrium profit as long as long as precontract customization is at least modestly important in competitive dynamics; and (2) The ability to conduct preference-based discrimination enhances social welfare if any precontract customization is done.

Notes: In this paper, we examine Hong Kong's role in intermediating trade between China and the rest of the world. Hong Kong traders distribute a large fraction of China's exports. Net of customs, insurance, and freight charges, re-exports of Chinese goods are much more expensive when they leave Hong Kong than when they enter. Hong Kong markups on re-exports of Chinese goods are higher for differentiated products, products with higher variance in export prices, and products sent to China for further processing. These results are consistent with the view that traders resolve informational problems in exchange. Additional results suggest that traders price discriminate across destination markets and use transfer pricing to shift income from high-tax countries to Hong Kong.

Notes: In a model where upstream network insiders conduct relationship-specific investment, downstream firms have an incentive to transact within networks. Evidence from US auto parts exports to 26 auto-producing countries supports key predictions of the model. Greater production scale for assemblers lowers imported parts per car. Vertical networks matter in two ways. First, although Japan's average import levels are not unusually low, non-Japanese suppliers have relatively low market penetration for parts categories where vertical keiretsu are prominent in Japan. Second, US-owned assembly abroad and foreign-owned parts production in the US both stimulate parts exports.

Notes: Motivated by evidence on the importance of incomplete information and networks in international trade, we investigate the supply of network intermediation. We build a general-equilibrium model in which agents with networks of foreign contacts either can use their networks themselves in support of production or can make their networks available for others to use and thereby can become network intermediaries. We use this model for comparative statics and welfare analysis. One welfare conclusion is that intermediaries may have inadequate incentives to maintain or to expand their networks, suggesting a rationale for the policies followed by some countries to encourage large-scale trading companies.

Notes: We analyze how product differentiation influences firms' choice between exporting and foreign direct investment. When product specifications are determined endogenously, we show that there is no symmetric solution to the product specification subgame. The cost disadvantage of an exporting firm translates into a disadvantage in product specification. Overseas production is favored if this allows the investing firm to adopt a more aggressive product specification. Our analysis suggests an ambiguous relationship among location, product differentiation, and cost and demand functions, confirmed by the existence of a parameter range for which there is no pure strategy equilibrium in location choice.

Notes: We examine a heterogenous goods duopoly model, wherein governments simultaneously and noncooperatively choose whether or not to provide subsidies for their firms and then firms noncooperatively choose output levels, either sequentially or simultaneously. We find that government trade policy and market structure are interdependent. First, the trade regime alters traditional firm preferences over sequential versus simultaneous play. Second, different market structures influence governments' preferences about free trade versus subsidies. Further, if one of the firms is a potential leader, allowing for endogenous market structure generates equilibrium outcomes that sometimes reinforce, and sometimes counter, traditional results in the strategic trade literature.

Notes: The contracting practices of franchisors outside their domestic market have received little attention in the empirical literature on franchising to date, largely because of lack of data. We exploit a novel data set that allows us to describe the contracts offered by a number of US and Canadian franchisors operating in Mexico and also compare them to contracts employed at home. Our analyses reveal a series of stylized facts that we hope will prove useful in guiding future empirical and theoretical research on contracting and especially on cross-border contracting practices. These are as follows: (1) The overwhelming majority of franchisors seeking franchisees in Mexico offer exactly the same contract to potential Mexican franchisees as that employed in the home market; (2) Among those franchisors that already have established outlets in Mexico, nearly half use the exact same fees in Mexico and at home; (3) The majority of those franchisors that make changes only alter the fixed fee component of the contract; (4) There is no evidence that franchisors use franchising more or less in Mexico compared to home as an alternative to royalty rate customization—in fact, the extent of franchising (versus company-owned units) of these firms in Mexico is not different systematically from that observed in their domestic market or worldwide; and (5) There is no evidence of increased customization over time—if anything, the evidence suggests increased similarities in contracting practices over time.

Notes: We study three corporate nonmarket strategies designed to influence the lobbying behavior of other special interest groups: (1) astroturf, in which the firm covertly subsidizes a group with similar views to lobby when it normally would not; (2) the bear hug, in which the firm overtly pays a group to alter its lobbying activities; and (3) self-regulation, in which the firm voluntarily limits the potential social harm from its activities. All three strategies reduce the informativeness of lobbying, and all reduce the payoff of the public decision-maker. We show that the decision-maker would benefit by requiring the public disclosure of funds spent on astroturf lobbying but that the availability of alternative influence strategies limits the impact of such a policy.

Notes: We posit that the value of a manager's human capital depends on the firm's business strategy. The resulting interaction between business strategy and managerial incentives affects the organization of business activities. We illustrate the impact of this interaction on firm boundaries in a dynamic agency model. There may be disadvantages in merging two firms even when such a merger allows the internalization of externalities between the two firms. Merging, by making unprofitable certain decisions, increases the cost of inducing managerial effort. This incentive cost is a natural consequence of the manager's business-strategy-specific human capital.

Notes: Most of the existing empirical literature on franchising investigates the share of company-owned versus franchised establishments within large retail firms. This literature typically has not considered the decision of a business owner to operate an independent business or to become a franchisee. This paper empirically analyzes what determines whether independent ownership or affiliation is observed, using data on the affiliation status of 2,293 motel establishments located throughout the United States. Heterogeneity in the underlying economic environment helps explain affiliation choices at the establishment level. The results also suggest that failure to consider independent establishments may explain the puzzling negative correlation between risk and vertical integration commonly found in the empirical franchising literature.

Notes: Using a representative sample of the 2001 National School-based Youth Risk Behavior Survey, this study investigated the contemporaneous and intertemporal relationship between the use of licit and illicit substances by American youth between the ages 12 and 18. The results indicated a strong contemporaneous relationship between smoking cigarettes, drinking alcohol, smoking marijuana, and using cocaine. The results supported the gateway hypothesis indicating that prior smoking of cigarettes is significantly associated with the probability of current marijuana and cocaine use, as prior drinking of alcohol is significantly associated with the probability of current marijuana and cocaine use. The results also showed that males had a higher probability of using cocaine than females, whereas black students had a higher probability of smoking marijuana and using cocaine than white students. Age and race were associated with marijuana and cocaine use, but cocaine use was further linked with the factors of gender, region, and metropolitan area. These findings could have implications for public policies regarding prevention.

Notes: Every pre-school child requires an adult to purchase and provide a variety of foods, to help ensure a balanced selection is included in the diet to avoid any nutritional deficiencies. Children under 5 years have a greater demand for nutrients and energy to support the body's requirements for growth and development than at any other time throughout their life cycle. The paper critically reviews the main factors that influence food choices made by parents on behalf of their pre-school child. Dietary deficiencies in inner city areas remain a challenge for the government, educators and health professionals. A particular concern is iron deficiency as the prevalence of anaemia is common especially in British pre-school children from various family backgrounds. Poor parenting skills often exacerbate the problem, especially the early introduction of pasteurized cow's milk, poor weaning practices and lack of dietary knowledge. Therefore, improving education and understanding about the importance of iron could potentially improve dietary iron intake. Phase 1 of the study was completed in West Bridgford area of Nottingham in the UK. This part of the study aimed to determine parental knowledge with regards to the feeding of their pre-school child. A questionnaire and a 3-day diet history method were employed. These methods enabled the diet adequacy of the pre-schoolers to be analysed by NetWISP software. This study highlighted that iron deficiency remains a cause for concern and should be further addressed. The Sure Start programme is a possible means of education as it has the potential to access parents from all socio-economic classes. The programme can support and empower parents to become healthier consumers. Good dietary habits, established early in life, contributes to a positive start, and can be advantageous to individuals throughout their lifetime. Such long-term changes will help contribute to a healthier nation that the government envisages for the future.

Notes: There is focus upon advertising and children for two broad reasons. First, it is because children are children, and are considered separately. Second, it is because children will become adults. Advertising therefore effects behaviour during childhood and continues to do so into adulthood. Advertising to children rarely receives a good press, and it remains a controversial topic in the wider domain. Is it responsible for poor diet? Does it make children pester their parents? Is there too much of it? And does Christmas have to start in September? Subsequently the issue has evolved to question whether there should be advertising to children, and if so whether it should be regulated. This discussion paper examines arguments for and against children's advertising, and concludes that whilst there are compelling arguments on both sides, advertising to children remains an economic necessity in need of adjustment and regulation.

Notes: The nutritional status of children can influence their health and the risk factors for developing chronic diseases later in life. Korea is unique in that it is relatively westernized and yet maintains much of the traditional foods and cooking methods. Effective nutrition education should help children to choose a healthy diet through the establishment of positive dietary practices and habits. The main purpose of this research is to compare awareness towards nutrition education between primary schools in the UK and Korea and nutritional knowledge that children and parents have in these countries. Dietary and healthy eating knowledge data were collected by a questionnaire as part of a case study comparison using one primary school in Manchester, UK, and one in Seoul, Korea. A total of 171 primary school children and 124 parents of the children were recruited. The results indicated that children and parents appeared to be aware of the importance of limiting fat, sodium and sugar intakes, and requiring non-starch polysaccharide (NSP). However, in the case of some foods they did not have satisfactory nutritional knowledge of which foods were high in fat, salt, sugar and NSP. British children had a better understanding of the health implication of fat than Korean children, whereas more Korean children considered excessive salt intake harmful than British children. There seemed to be differences in dietary pattern and familiarity with food between the two countries. Children identified parents as the main source of nutritional information. Therefore, parents as well as children need to learn about nutrition in order to give appropriate information or advice to improve the diets of their children. Children preferred exciting, fun, positive and a practical approach to learning about nutrition, such as computer packages and cookery classes. Parents wanted schools to give their children more information about nutrition. This research has shown that nutrition education in schools should be concerned not only to provide nutritional knowledge but also to encourage children to choose healthy food by redesigning nutrition education and school meals.

Notes: The nutritional habits of UK consumers have become a cause for concern with an increasing number of people suffering from diseases related to nutrition. The way in which food is prepared may contribute to the nutritional content of the diet. Traditional methods of cooking and eating are being influenced by increased ownership of domestic appliances. This study aimed to carry out a cross sectional study of people living on Merseyside to determine the ownership and use of small kitchen domestic appliances in relation to the possible consequences the appliances may have on the nutrient intake of the individual. An opportunistic sample of 276 female adults aged 25–70 years was recruited from amongst university staff and community groups within Merseyside. Data were collected using a self-completion questionnaire consisting of questions concerning personal details, the ownership and use of domestic appliances that may influence nutrient intake. The Liverpool John Moores University Ethics Committee granted ethical approval. Microwave ovens, electric toasters and grills were owned by 80% of the population. Coffee makers, handheld electric food mixers, sandwich makers, blenders and food processors although owned by over 45% were used by the majority only once a week or less. Newer items such as a bread maker were owned by 9% who were significantly more likely to have a professional occupation. Those with unskilled occupations were significantly more likely to own a deep fat fryer and least likely to own a food processor. Those aged 25–34 years were significantly least likely to own a handheld food mixer. Households comprised of couples with or without children were significantly more likely to own sandwich makers, bread makers, food processors and handheld food mixers. No difference in the use of the appliances was found with occupational group or age. A large percentage of people own a variety of domestic appliances, the use of which may have a beneficial effect on their nutrient intake, however, it is of concern that those in the lower socio-economic group were more likely to own appliances that will have a negative effect on their diet.

Notes: This qualitative study examined the consumption of Indian foods among groups of English and Indian people living in the UK. Both convenience and freshly made Indian foods were included in the research. The aim was to explore attitudes (based on ethnicity) towards, and the consumption of, Indian foods. The means–end model and laddering methodology were used in interviews with 24 respondents, 12 from each group (English and Indians). The personal values ‘social life’, ‘health’, ‘adventure’, ‘enjoyment’ and ‘savings’ were found to be the most important for English respondents whereas ‘enjoyment’, ‘good life’, ‘health’, ‘religion’ and ‘culture’ were the most desirable value ends for Indians. The results provide an insight into English and Indian peoples’ perceptions of Indian food that can be used in promotion and marketing positioning of branded Indian foods, sauces and accompaniments.

Notes: People are becoming more health conscious nowadays, but most of them are not able to adopt a lifestyle with adequate physical exercise and a healthier eating pattern. Many attempt to compensate by taking ‘health foods’. Despite the recent economic recession, the functional food market is expanding rapidly in Asian countries. Recent statistics indicate a huge increase in weight loss and functional food product advertising expenditure in Hong Kong and other Asian countries. In a large scale survey conducted by the Hong Kong Consumer Council on advertisements, it was found that 85% of the medicines, health food and therapies sampled contain questionable claims and misleading messages, which was the second most problematic category of the survey. In addition, young people do not understand much about modern food processing, in particular with regard to low energy and functional foods, and they know very little about modern food marketing strategies. The situation is potentially detrimental to consumer welfare, especially to the younger generation. This study was conducted to reflect critically on implications of the issue on the health and well-being of young people in Hong Kong. Attempts are made to explore directions for designing relevant and effective education programmes to empower young people's abilities in understanding food advertising strategies and making informed decisions on food choice. This paper begins with a critical review of the current situation with regard to Hong Kong. Then, the results of an interview survey and a questionnaire survey on pre-service and in-service teachers’ perception towards misleading food advertising and labelling are reported. The situations at schools are defined and problems faced by teachers in providing relevant consumer education programmes to students are identified. Finally, some prospective foci for further investigation of this important issue, with a view to developing students’ critical skills in evaluating claims offered in food advertisements, will be considered.

Notes: The aim of consumer education has been mainly to teach and educate students to act as informed, rational and prudent consumers. This perception of consumption as reasoned behaviour or action is inadequate in the late modern society, where consumerism is first and foremost characterized by globalization, cultural change and the liberation of the individual. The results of a research study involving Danish pupils aged 12–19 years present a picture of consumption connected both to material and non-material aspects of life. Consumption as such has a significant impact on and meaning for the individual: it becomes a means by which human beings communicate and interact. Consumption is part of children's and young people's education and socialization, and plays a role in the development of identity and self-image. Institutional consumer enlightenment and the education of students in school stand in contrast to informal consumer  socialization  and  the  education  of  individuals. The aim of formal consumer education may be described as ‘educating for critical consumer awareness and action competence’. However consumer education finds itself in the dilemma between ‘consumership’ and ‘citizenship’. This pilot study is aimed at understanding consumer socialization in order to improve formal consumer education and to reflect on how empowerment becomes part of consumer education.

Notes: Ethical attitudes in relation to meat purchases were studied among urban and rural consumers in Scotland. All subjects perceived at least some ethical issues in relation to animal production systems, in particular, systems keeping animals in close confinement. Welfare-friendly production systems were viewed as adding value to a food, but this value was not necessarily realizable to producers if purchases occurred only when foods were on special offer. Statements made by individuals were often contradictory, revealing ambivalence, unresolved value conflicts and a general lack of involvement in the nature of meat production. A number of barriers to the establishment of stable attitudes and behaviours in relation to the ethical treatment of food animals were also identified. A key finding of the study is that individuals can hold two views on animal welfare. On the one hand, they may think as citizens influencing societal standards, and on the other, as consumers at the point of purchase. As citizens, they support the notion of animals being entitled to a good life; as meat consumers, they avoid the cognitive connection with the live animal. This paper explores both the citizen–consumer relationship and purchase strategies used by consumers to resolve value conflicts. Lessons for public and commercial policy are highlighted in the context of the Curry Report (2002) which advocates more effective market segmentation where markets are finely attuned to their customers, with the development of a number of assurance schemes discussed in the article.

Notes: The aim of this paper is to offer regional evidence from Spain on alcohol abuse among adolescents. Specifically, we identify the determinants of the decision to abuse alcohol with respect to the five most important regions of Spain, as well as for the country as a whole. To this end, we estimate Probit specifications using data drawn from the Spanish Surveys on Drug Use in the School Population corresponding to 1994, 1996 and 1998. The results first reveal patterns that are qualitatively similar, but quantitatively different. Similarly, it would appear that economic policies aimed at reducing the access of adolescents to alcohol may have a positive effect on reducing abuse. Finally, the results suggest that encouragement be given to healthy habits among young people, as well as to the fight against education failure and the launching of information campaigns that accurately portray the current lifestyle of adolescents.

Notes: The aim of this study was to determine the knowledge and acceptability of soymilk (defined as consumption pattern/usage and taste) by adult consumers, residing in different socio-economic areas (low vs. high) in Cape Town. The study population of 214 participants were selected using convenience sampling. A questionnaire was developed in order to obtain demographic data (four items); basic general knowledge of soymilk (four items); and acceptability of the tested products (consumption patterns and taste) (eight items). There was a significant difference between the two groups (P = 0.000) regarding basic knowledge of soymilk, with significantly more in the high socio-economic area (HSEA) having a score of at least 75%. Gender (P = 0.082) and age (P = 0.122) did not have a significant impact on the consumption patterns of soymilk. There was no significant difference between the two groups with respect to current usage (P = 0.228) and frequency of use (P = 0.213) of soymilk. However, a significantly smaller group (P = 0.000) of participants in the low socio-economic area had previously tasted soymilk compared with those in the HSEA (16.7% vs. 41.5%; P = 0.000). In conclusion, socio-economic status appeared to be associated with knowledge of soymilk. No significant differences with regard to gender, age or current usage in the two groups studied were noted.

Notes: This paper focuses on three issues. First, it analyzes the increasing inequality of wealth in Sweden in terms of percentile age and birth cohort differences, and finds very weak evidence of life-cycle savings. There are rather strong birth cohort differences in wealth accumulation. Second, it is shown that bequests and inter vivo gifts contribute to the age and cohort differences in wealth, but do not increase the inequality of wealth. The third theme is mobility of wealth as a function of bequests, age, period, length of the transition period, and the magnitude of quantile differences.

Notes: Using PSID data for the years 1984–99, we estimate the level and severity of asset poverty. We find that despite a sharp decline in the official poverty rate, the asset poverty rate barely budged over this period. Moreover, the severity of asset poverty increased during this period. The likelihood of being asset-poor decreased for those who are college graduates or married with children, whereas it increased for those who are white, for the unmarried elderly, and for those without a college degree. Lifetime events such as changes in job market, marital and homeownership status are correlated with transitions into and out of asset poverty.

Notes: Horizontal and vertical measures of inequality are related through mobility. The paper draws attention to two types of mobility: quantity mobility, which refers to mobility in income itself, and rank mobility, which refers to mobility in the position in the distribution of income. Individually matched census data for earnings in Israel are used to illustrate these concepts empirically. Mobility is measured between 1983 and 1995. It is shown that earnings in Israel are highly mobile. The high degree of earnings mobility implies that horizontal measures of inequality considerably overstate the underlying level of inequality. The method of errors in variables is used to distinguish between current and permanent mobility and inequality. Permanent earnings are more equal than current earnings and less mobile. Finally, the methodology is applied to PSID. It is shown that earnings were more mobile in Israel than in the United States.

Notes: This paper investigates the impact of economic growth, and more specifically robust economic growth along with other macroeconomic determinants, on poverty levels using both the U.S. official measure of poverty and an estimated time series of Sen indices of poverty. The results reveal that the period of robust economic expansion that the U.S. economy experienced during the 1990s did not have a significant impact on poverty using either measure. In addition, we find that the impact of growth and other macro controls is dramatically different when a subset of the poverty population, namely non-white poverty, is investigated. The percentage of households headed by women is shown to be a significant factor in examining poverty for this subgroup.

Notes: This paper describes a new dataset of annual time series relating to the U.S. nonfinancial corporate sector: its market value, returns, and the major underlying stocks and flows that are valued by financial markets. The data cover the entire twentieth century, and thus fill a significant gap in the documentation of financial and real economy linkages. Previously available data cover either shorter periods, or a more restricted sample of quoted companies. A range of series are constructed on a consistent basis: returns; dividend yields (including an alternative “cashflow” measure); earnings; and “q”, on a range of definitions; as well as corporate leverage measures. The main features are: the relative long-run stability of both q and the cashflow dividend yield; the systematic tendency for q to be less than unity; and the ambiguous picture presented by alternative measures of corporate leverage.

Notes: Review of Explaining Growth: A Global Research Perspective, edited by Gary McMahon and Lyn Squire and Productivity Growth, Inflation, and Unemployment: The Collected Essays of Robert J. Gordon by Robert J. Gordon

Notes: While GDP is the appropriate measure of output, I argue that Weitzman's NDP (WNDP)—nominal net domestic product deflated by the price of consumption—is the appropriate measure of welfare. Total factor productivity (TFP) growth measures the shift in the GDP frontier, and there is an analogous concept for WNDP, which I call total factor welfare (TFW) growth. I calculate and compare WNDP and GDP, and TFP and TFW, for the United States in the 1990s. I find that the acceleration of WNDP post 1995 was as great as that of GDP, even though the aggregate depreciation rate was rising.

Notes: While China's official statistics are often regarded as of questionable quality, critics are rarely aware of just how difficult it is to compile accurate statistics in a developing and transition economy. This paper traces the challenges economic reforms pose for the development of China's statistical system, establishes a typology of the resulting data problems in official Chinese statistics today, and examines how these challenges and data problems are being addressed through institutional innovations in data compilation. Analysis of China's data compilation methods allows broad judgments on data quality. Special attention is given to GDP data as the aggregate measure of productive activities in China.

Notes: Economic transition from a planned to a market oriented economy is often associated with a widening of income inequality. The nature of this change, however, may differ during different stages of the economic transition. This paper investigates the increase in income inequality in urban China during two phases of economic reform: a moderate reform era (1988–95) and a radical reform era (1995–99). It is found that although income inequality increased considerably during both stages, the nature and causes of the increase are different. In the moderate reform period, the increase in inequality was a result of some parts of society sharing more of the economic gain than others, and the main cause of this inequality is regional income dispersion. During the radical reform period income reductions at the lower end of the distribution is observed, and it is mainly due to the large-scale unemployment generated by labor reallocation.

Notes: In recent years quality adjustment of price indices has been vigorously explored and the hedonic regression method has become popular in official statistics. In service sectors, however, the current CPI seems not to have been successfully adjusted to accommodate quality changes. In this paper I focus on the railway industry in Japan, where quality change is a vital factor in the measurement of price indices and productivity. Using hedonic regressions to adjust CPI railway fares, the paper suggests that there may be a significant degree of upward bias in the current CPI railway fares. Also, this leads to the results that the total factor productivity (TFP) of the Japanese railway industry, which is calculated by using the newly adjusted CPI as a deflator, has been improved contrary to previous research on this issue.

Notes: This paper evaluates the linkage between social security strategies and redistributive effects in EU social transfer systems. It is argued that the various European systems produce different patterns of redistribution that may be explained by the adoption of different mixes of social security strategies. In support of this argument, several ideal-typical strategies are characterized and a classification of European social transfer systems is introduced. Subsequently, the redistributive effects of the systems are assessed and the relationship to their class assignment is investigated. We conclude that the redistributive effects differ markedly between systems of different classes, indicating that redistributive patterns are heavily influenced by the adopted strategy mix.

Notes: Books reviewed:Review of Gender and the Labor Market: Econometric Evidence of Obstacles to Achieving Gender Equality, edited by Siv Gustafsson and Danièle Meulders; and Gender and the Welfare State: Care, Work and Welfare in Europe and the USA, by Mary Daly and Katherine Rake 
Reviewed by Martha MacDonald

Notes: This paper is inspired by the work of Nancy and Richard Ruggles promoting national economic accounting in academic and non-academic areas. They were concerned with both compilation and use of national accounts as well as developmental issues. Now that the subject has matured with the 1993 SNA standards, the compilation, development and understanding of the accounts require special training and experience, but national economic accounting has become a multidisciplinary matter that cannot easily fit into one academic department. Hence we advocate a Certified Economic Accountant (CEA) degree or diploma program to gain enhanced recognition and greater understanding for national economic accountants and their work. The paper includes an annotated list of 50 references, covering the period 1942–2002, that might form a syllabus, and a section outlining the mechanics and problems of organizing such a program.

Notes: The formal accounting logic of the national accounts and other macroeconomic statistics is not always well understood. In addition, the relation between macro statistics and micro accounting data often is not clear. This paper starts out by summarizing the main bookkeeping conventions at the macro level. A distinction is made between vertical and horizontal double-entry bookkeeping, which, if applied simultaneously, result in quadruple-entry bookkeeping. Vertical bookkeeping refers to the double-entry bookkeeping used in business practice. Horizontal bookkeeping requires that the transactions and other economic relationships between agents answer strict consistency rules regarding valuation, timing, and classification. At the micro level, this consistency is not guaranteed. The article reviews three options to reinforce the micro-macro link (proposals by Nancy and Richard Ruggles, proposals by Harry Postner, and the intermediate accounts in France), and concludes with a few suggestions that could be used in the upcoming revisions of the international statistical manuals.

Notes: National accounts are a macro-economic accounting system that is compiled on the basis of a globally harmonized accounting standard, that is SNA93/ESA95. To a large extent, the SNA93/ESA95 accounting principles are also suitable for government (micro-)accounting purposes, if only because the accounts drawn up according to this standard are comparable across (types of) units and over time. That facilitates performance monitoring and benchmarking. In addition, the ESA95 guidelines and procedures deal with innovative transactions and accounting, which increases the credibility of the accounts. Finally, accounts for government units are then directly comparable with the macroeconomic accounts, which facilitates the link between forecasts for the national economy and drawing up government budgets. This paper also describes the present conversion of government accounts to national accounts for the government sector in the Netherlands and the plans of the Dutch government to change from a cash-based to an accrual government accounting system.

Notes: Although economic classification is not part of the Ruggles's prodigious contributions to the System of National Accounts, it is certainly meant to help achieve the integration and linking of macrodata with microdata. Unfortunately, economic classification is a component of the statistical infrastructure that often remains unquestioned by the existing industrial organization literature. This paper fills this gap using the banking business under the 1997 North American Industry Classification System (NAICS) as an example. More specifically, the paper ascertains the extent to which NAICS succeeds at combining the various activities performed by Canadian banks into homogeneous industries. Assuming that producing units within the same industry should display more similar cost structure than those in less similar industries, we find that NAICS—at least for the banking sector—is successful at identifying and grouping producing units into homogeneous economic activities. This result is particularly helpful for empirical research that relies on microdata to draw inferences on the structures, conduct and economic performance of the banking sector as whole.

Notes: Moving human capital inside the production boundary requires human capital and its services to be treated as outputs of production processes. The primary input of labor ceases to exist, and it is necessary to redirect goods and services consumed by it as inputs in the industries that now produce human capital and its services, i.e. human time. A description of the total production system, which includes these industries, is given. This description is formalized by means of the dynamic input-output model. The potential uses of this approach are discussed. Two well-known approaches to include human capital in national accounts are discussed against this background. They lead to exceptionally high rates of return on inputs in human capital and, logically, also leave substantial resources available to net additions to the stocks of human capital.

Notes: The paper examines path dependence of price indexes, a problem that has become acute after international adoption of chain indexes for price and volume changes in the SNA93. Path dependence is an old issue of index numbers, and has been in the way of using chain indexes ever since their invention. The paper accepts chaining at its start, and tries to develop a sound deflation procedure from there. In this analysis path dependence is less an issue of appropriate formalization of a given concept, the traditional approach in index number theory, but rather a problem of developing an interpretation to a given and now worldwide recommended statistical practice. The key issue is found in the fact that money is not only the standard means of payment, concerning central banks, but also the standard of value in an economy, a feature that bears directly on the compilation of price indexes and national accounts. As a result, a chained weighted index is shown to be path independent, if it is interpreted as a change not of prices, but of the unit of account in which prices are expressed.

Notes: This paper is an application of Flow-of-Funds analysis to the case of Thailand during the 1996–97 Asian crisis. It begins with a background historical sketch of the financial crisis in East Asia, emphasizing the central role of weak financial systems and foreign debt. The paper then presents a method of estimating quarterly Flow-of-Funds accounts using Thailand as an example. This simple method is available from data published by the I.M.F. for most of the countries of the world. The Thai data are then used in a Flow-of-Funds analysis of the crisis in Thailand. This analysis contrasts with the opening historical sketch in quantitatively tracing the significant financial flows and, particularly, the finances of the private sector. The paper closes by emphasizing the need for current reporting of data to facilitate such analyses.

Notes: The publication of the 1993 System of National Accounts served as a major milestone in creating international standards for compiling a fully integrated set of accounts measuring a nation's production, income, and wealth. While statistical agencies continue to make progress toward full implementation of the 1993 SNA, attention is now turning to perceived deficiencies of the system and areas for possible improvement. This paper discusses several suggestions for possible changes in the national accounts, including inclusion of multifactor productivity measures in the production account, changes to the definition of output for certain financial services, expanded coverage of intangible assets, capitalization of military equipment, inclusion of consumer durable goods in measures of saving, imputation of a rate of return to fixed assets used for nonmarket production, reconsideration of sectoral boundaries, and modification of the definition of capital transfers for capital gains taxes.

Notes: The article is about design of analytical data frameworks that make optimal use of micro data available to serve the needs of the policy analyses and create a maximum number of data checks at the macro or meso level. As the SNA is one of the most extensive analytical data frameworks, the notions developed in this paper will be applied mainly to data segments of the SNA and in particular to a much used data segment of the SNA, i.e. the Supply and Use Table (SUT). The larger part of the paper focuses on defining a simplified SUT and using a so-called “system of classifications and correspondences,” that is based on international SNA and classification standards but taking into account specific features of the economy of a country, data availability and the type of analysis served by the framework. The simplified SNA should be comprehensive, but should avoid unnecessary cross-classifications of data and details.

Notes: The paper examines whether arbitrage tends to equalize commodity prices for internationally traded homogenous products. It also investigates whether the increasing integration of North American markets has reduced price differences over time, and tests the validity of the so-called Law of One Price. We find that price differences for homogenous tradables between Canada and the U.S. are smaller than those for differentiated tradables and non-tradables, and are statistically insignificant over the period 1985 to 1999. We find no support for the notion that the increasing integration of North American markets due to trade liberalization has reduced price differences between Canada and the United States. Instead, the shifts in the price differences (expressed in the same currency) generally reflected fluctuations in the exchange rate. Canadian prices adapt with a lag to U.S. price changes that are brought about by changes in the exchange rate.

Notes: The 1968 System of National Accounts (SNA 68) represented an important milestone in national accounting. In providing a more detailed structuring of the economy and integrating a correspondingly more relevant system of basic, producer and purchasers’ prices by commodities and industry sectors, it helped lay to rest the early schism that developed between Keynes and Tinbergen over the question of the legitimacy of empirical economic modeling. The system was readily embraced by the advanced countries of Western Europe because it responded directly to the contemporary political imperatives of development planning and the need for economic forecasting models. But a large part of the non-Western “free world” encountered almost insurmountable difficulties in the full implementation of the system and became quickly bogged down in the quagmire of inter-industry statistics and valuation problems. Nancy and Richard Ruggles pressed for a revision providing workable solutions that would make the system more adaptable to the policy needs and statistical capacities of the majority of UN member countries. What actually happened took very much longer to reach fruition than was ever intended. The SNA 93 now represents the “gold standard” for national accounts, covering every aspect of economic activity. It is a masterpiece of conceptual coherence. Its encyclopedic character allows analysts and practitioners alike to dip into its voluminous pages for reasoned answers to why certain valuation questions and estimation procedures should be dealt with in a particular way. But SNA 93 remains a formidable document and it is not the operational data friendly framework that the Ruggles initially had envisaged.

Notes: The distributional characteristic provides an attractive alternative to conventional approaches used to evaluate the targeting performance of transfer programs. We decompose it into two components that are useful both conceptually and empirically; one capturing the targeting efficiency of the instrument, the other its redistributive efficiency. The redistributive index can also be generalized for the purposes of evaluating the degree of progressivity in tax-benefit structures. For illustrative purposes, we present an empirical application of the distributional characteristic and its decomposition using Mexican data. The welfare gains from using categorical targeting and means testing reflect improvements in redistributive and targeting efficiency respectively.

Notes: Improving the distributional impact of transfers may be costly if it reduces labor supply. In this paper we show how effects of changes in the design of the child benefit program can be examined by employing information from behavioral and non-behavioral simulations on micro data. The direct distributional effects are assessed by tax-benefit model calculations, while female labor supply responses to alternative child benefit schemes are simulated under the assumption that choices are discrete. Distributional effects after labor supply responses are also shown. The study confirms that greater targeting of the child benefit is traded against reductions in female labor supply.

Notes: Twenty-Eighth General Conference—Cork, Ireland 22–28 August, 2004

Notes: This paper reviews the normative welfare economic literature on income-based targeting and contrasts its assumptions with those underlying current policy discourse. One current policy debate concerns the potential role for Earned Income Tax Credit (EITC) income tests. In general, economic models within the standard (for economists) ‘welfarist’ approach provide little support for such policies. However, much policy discourse is explicitly non-welfarist, placing a negative social value on the leisure or home production of the poor. From this perspective, EITC or workfare-type programmes may be socially optimal. The normative foundations of this policy discourse, however, have yet to be subject to the rigorous analysis that underlies the welfarist approach.

Notes: The evaluation of taxpayers' compliance costs has grown in significance within tax system research over the last 15 years. In 2001, two surveys of VAT and personal income taxpayers were conducted in Slovenia to evaluate compliance costs for the 2000 fiscal year. This paper presents the results of research into compliance costs for personal income tax in Slovenia. The results show that compliance costs for personal income tax are relatively low, primarily because most taxpayers consider filing their tax declaration to be a simple procedure, which means that consultancy costs are low.

Notes: This paper examines the application of price-cap regulation to the UK airport industry, with particular reference to the expansion of London-Stansted. This expansion is relevant to the debate concerning investment incentives inherent in the RPI–X approach and whether the UK style of regulation encourages the ‘sweating of assets’ at the expense of new investment. Stansted's expansion also suggests a willingness of the authorities to accept the leveraging of market power in pursuit of perceived public-interest goals; it provides an insight into the behaviour of economic agents when capital market disciplines are mute; and it illustrates some unintended consequences that can follow from market intervention.

Notes: This paper addresses two sets of issues relevant to current and prospective future E(M)U members: the consequences of the Stability & Growth Pact for fiscal-financial sustainability and macroeconomic stability, and some risks associated with operational independence of the central bank. To be effective as a lender of last resort or to stabilise demand when short nominal interest rates are close to their zero lower bound, the central bank must coordinate and cooperate with the fiscal authorities. Central bank independence is unlikely to survive if such coordination and cooperation are not forthcoming.

Notes: This paper assesses the distributional impact of indirect taxes among Greek households between 1988 and 2002, a period that coincides with the introduction of significant reforms in the tax system due to EU membership. The highly differentiated indirect tax structure prevailing at the beginning of the period had distributional benefits over the more simplified 2002 tax structure. The overall inequality of the after-tax welfare distribution has increased by 6–12½ per cent and changes in the indirect tax system seem to explain about half of this increase. The paper also applies a recent method of measuring the distributional impact of relative price changes caused by changes in tax rates of commodities (Newbery, 1995) and establishes that indirect tax reforms introduced since 1988 had an adverse impact on the distribution of purchasing power, which nevertheless seems to be very small.

Notes: In this paper we propose a method of estimating multilateral regional price index numbers from a given household level data set on item-wise unit values/prices. The method is closely related to the Country-Product Dummy variable model of Summers (1973). This method is likely to be particularly useful in studies of regional comparisons of poverty and inequality, optimal commodity taxes and tax reforms. To illustrate the method, we use it to calculate the regional consumer price index numbers for Eastern, Western and Southern India (taking Northern India as the reference region) separately for three categories of rural and urban households, viz., all households and those below and above the poverty line, using household level unit records of the NSS 50th round (1993–94) Consumer Expenditure Survey.

Notes: The analysis uses March Current Population Survey data to estimate state-level cross-section/time-series models of the effects of the unemployment rate on alternative poverty rates. The measures include the official headcount rate, and alternatives based higher thresholds, revised equivalence scales and income defined as inclusive and exclusive of taxes and cash and in-kind transfers. The estimated effects turn critically on the measurement approaches, both for the total sample population and for four population sub-groups. For several alternative poverty rate measures, the unemployment rate has no significant impact on poverty. By contrast, real per-capita median earnings have strong and consistently negative effects on the poverty rates of all groups studied. The findings thus provide important lessons for researchers exploring the links between economic conditions and poverty, and for policy makers developing poverty reduction strategies.

Notes: We provide evidence on the link between infrastructure development and the distribution of income for the period 1960–97. We use roads, railways, telecommunications, and energy measures. The approach is comprehensive as individual measures and composite indices are used. Cross-country and panel regressions are applied. In the latter, we apply GMM dynamic methods to minimize for endogeneity problems. We find that both quantity and quality of infrastructure are negatively linked with income inequality. The quantitative link tends to be stronger in developing countries than the qualitative link. These findings hold when using different econometric methods and most infrastructure measures.

Notes: In this study the 1997 Russian Labor Force Survey is used to investigate wage differentials between the state and the private sector in the city of Moscow. Our analysis demonstrates that substantial differences exist between private and state sector wages. We estimate the gap between private and state sector wages to be 14.3 percent for men and 18.3 percent for women. We also find gender differences in wages. Men in the private sector earn on average 23.7 percent more than women. The gender wage gap in the state sector is even higher at 32.5 percent. In the state sector, wages for both men and women increase as years of tenure increase. But in the private sector this is only true for men; women earn no return to tenure. The probability of employment in the private sector decreases with age and tenure.

Notes: Review of Child Well-Being, Child Poverty and Child Policy in Modern Nations by Koen Vleminckx and Timothy M. Smeeding and The Dynamics of Child Poverty in Industrialized Countries by Bruce Bradbury, Stephen P. Jenkins, and John Micklewright

Notes: Household accumulation of debt and arrears on debt, especially among low-income families, is an extremely topical issue in the UK media and in policy circles. This paper utilises data from the UK's Survey of Low Income Families in order to examine use of credit, and default and arrears, among low-income families with children. It shows how credit use and accumulation of arrears differ between single parents and couples with children, and also between homeowners and renters. It also briefly examines the persistence of arrears on specific forms of credit using the panel element of the data-set, now named the Families and Children Survey.

Notes: The literature on public sector discounting has brought important insights, but there remain wide differences on some fundamental issues. This paper reviews the main conflicts and the reasons underlying them. It suggests practical procedures for discounting in government which are consistent with most of the literature but not with the ‘efficient market’ thesis that financial markets provide all the information needed to define these procedures.

Notes: This paper provides estimates of individual and aggregate revenue elasticities of income and consumption taxes in the UK over the period 1989–2000. It shows how budgetary changes, including changes to income-related deductions, have substantially affected income elasticities. The estimates of consumption tax revenue elasticities show that changes in consumption patterns over time are important. A merit of the approach used here is that elasticity estimates can be calculated readily from official published sources.

Notes: This paper tests the published section-level price and weight data used in the compilation of the UK retail price index (RPI) for consistency with the theory of the cost-of-living index. We use a non-parametric test of theoretical consistency and bootstrap statistical methods to estimate the probability of consistency.

Notes: Scotland has much higher public expenditure per head than England, but little work has been done to compare Scottish and English needs. We compare their needs for school education, and we show that if the Formula Spending Share approach that is used to estimate English local authorities' needs were applied in Scotland, then Scotland would be found to need about 3 per cent more per pupil than England; however, this English approach may slightly underestimate Scotland's needs. We also show that the Grant Aided Expenditure approach that is actually used to estimate Scottish local authorities' needs may be about 7 per cent more generous than the English approach. Finally, we find that the correlation between the relative education needs for different authorities as assessed by the Scottish approach and their relative needs as assessed by the English approach is only modest; this implies that there may be serious shortcomings in at least one approach.

Notes: Non-take-up of means-tested benefits among pensioners is of long-standing concern. It has assumed increased importance from October 2003 with the introduction of the new means-tested pension credit to which about half of pensioners are expected to be entitled. We use Family Resources Survey data from April 1997 to March 2000 to investigate patterns of pensioner take-up of income support (IS) (subsequently renamed the minimum income guarantee and now subsumed in pension credit), housing benefit (HB) and council tax benefit (CTB). Although 36 per cent of pensioners in our sample failed to claim their entitlements to at least one of these benefits, only 16 per cent failed to claim amounts worth more than 10 per cent of their disposable income. Generally, take-up is high where entitlement is high. But there are exceptions which may reflect the claims process and/or a greater degree of social stigma associated with IS than with HB or CTB.

Notes: A key figure suited to measuring intergenerational imbalances in unfunded public pension schemes is given by the ‘implicit tax rate’ imposed on each generation's lifetime income. The implicit tax arises from the fact that, quite generally, pension benefits fall short of actuarial returns to contributions paid to these systems while actively working. Under current pension policies, implicit tax rates will increase sharply for younger generations in most industrialised countries. In this paper, this is illustrated for the cases of France, Germany, Italy, Japan, Sweden, the UK and the USA. Nevertheless, there are remarkable differences across countries regarding both the level of implicit taxes and their development over successive age cohorts, which can be attributed to differences in ageing processes and in the institutional features of national pension systems. In addition, we can demonstrate how effective different approaches to pension reform are in smoothing the intergenerational profile of implicit tax rates.

Notes: Evidence that welfare-to-work programmes in the USA succeed in boosting welfare recipients' earnings at modest cost has helped shape policy in Britain since 1997. So too has the belief that programmes that prioritise moving people into work quickly are more effective than ones that seek to enhance human capital. However, there is little evidence on how long the beneficial effects of programmes persist after individuals leave them. The analysis reported draws on the experience of 64 US welfare-to-work programmes that have all been evaluated using random assignment. It concludes that, on average, these programmes have a positive effect on participants' earnings for five to six years. The effects of ‘work first’ interventions are most marked early on and decline more rapidly than those of programmes emphasising human capital. Nevertheless, work first interventions typically increase earnings received over six years by more than two-and-a-half times that achieved by human capital approaches.

Notes: Between 1992 and 1995, the Italian pension system was deeply reformed, and it is now moving from an earnings-related to a contribution-based scheme. The pre-1992 system was generous and redistributive; however, often redistribution operated from the poor to the rich, notably because the benefit formula was based on the last years of earnings, thus benefiting workers with steep earnings profiles. The new contribution-based scheme may enhance equity by removing (some of) the inequities implicit in the previous system.Simulations calibrated on Italian male employees show that the contribution-based scheme reduces inequality among all groups considered, with the exception of college graduates employed in the private sector. When taking into account the average level of the benefit as well as its distribution, the analysis shows mixed results depending on the worker's number of years of contribution and on their retirement age, as well as on the steepness of their earnings profile.

Notes: Microsimulation methods are used to identify the contribution of tax and benefit reforms to the significant growth in UK income inequality since 1979. The total effect turns out to depend crucially on the counterfactual against which the reforms are assessed: compared with the alternative of pure price-indexation, the total effect of reform is small; by contrast, compared with a counterfactual in which benefits rose in line with national income (historically the case before 1979), the effect is substantial – approximately half the total rise in income inequality is explained. The impact of reforms on inequality has varied significantly over time: income tax cuts in the late 1970s and late 1980s increased inequality; direct tax rises in the early 1980s and 1990s, together with increases in means-tested benefits in the late 1990s, reduced it. The robustness of the results to sampling variation and to the measure of inequality used is also investigated.

Notes: We analyse a puzzle in the UK corporation tax: by both historic and international standards, corporation tax revenues have been high while the statutory rate has been reduced. We consider explanations based on changes in the tax law and in economic factors. Changes in the tax law, such as base-broadening measures through reductions in capital allowances, can explain only part of the puzzle. Among the economic explanations, an increase in the size of the corporate sector, mainly caused by expansion of the service sector and improvements in profitability of the financial sector, seems the most likely. To the extent that higher profits, particularly financial sector profits, may have led to high revenues, there are doubts as to whether revenues will continue to be so strong.

Notes: During the last decade, the Italian system of intergovernmental fiscal relations has been involved in a radical process of reform that is still under way. The reform has assigned Regions new taxing powers and has introduced a new system of interregional transfers. This paper provides a review of the recent reform and offers some tentative answers to the issues still open, relying on a series of simulations and projections. A number of conclusions have been reached. First, when the long-run performance of the new financing systems is investigated, regional resources may no longer be adequate to meet future health needs. Second, the incentives for active tax policies seem either to prove too weak or even to cause undesirable results. Finally, the complete devolution to the Regions of some significant public expenditure functions risks strengthening the polarisation of financial flows between the Northern and Southern Regions in the long run.

Notes: Consensual deprivation indicators assume that there is a broad consensus on what goods/services families should be able to afford, and that an inability to afford those items can measure deprivation. Using data from two British surveys in 1999, this paper makes two arguments. First, there is only limited agreement about which items families should be able to afford. Secondly, different social groups are more (or less) likely to say the absence of a ‘necessity’ is due to choice. Families who cannot afford two or more ‘necessities’ invariably have a number of ‘nonnecessities’, often many. Their patterns of preferences (and spending) are not typical and they are choosing to buy other goods – through preference rather than poverty. Simply checking whether people lack items for any reason provides results empirically as reliable, but subject to similar criticisms.