Volume 1, Issue 2

Divide the decision-maker's future into: (i) a pre-outcome period (lasting from the decision until the outcome of that decision is known), and (ii) a sequel postoutcome period (beginning when the outcome becomes known). Anticipated emotions in both periods may influence the decision, in particular, with regard to an outcome that matters to the person, the enjoyable tension from not yet knowing what this outcome will be. In the experiments presented, lottery choice can be explained by this attraction to chance, and cannot be explained by either convex von Neumann-Morgenstern utility, or by rank-dependent risk-loving weights: attraction to chance is a separate motivator.

We model migration as a response to relative deprivation. We present a specific configuration of incomes in which the process of migration in response to relative deprivation reaches a steady state. However, for the general configuration of incomes we show that it is impossible to prove the existence of a steady state. We study the social welfare implications of the two cases and show that if individuals are left to pursue their betterment, the resulting state falls short of the best social outcome. We present several implications of the model including federalism and the demand for secession.

The measurement of individual happiness challenges the notion that revealed preferences only reliably and empirically reflect individual utility. Reported subjective well-being is a broader concept than traditional decision utility; it also includes concepts like experience and procedural utility. Micro- and macroeconometric happiness functions offer new insights on determinants of life satisfaction. However, one should not leap to the conclusion that happiness should be maximized, as was suggested for social welfare function maximization. In contrast, happiness research strengthens the validity of an institutional approach, such as reflected in the theory of democratic economic policy.

In the pure public good model, the Nash equilibrium associated with one initial income distribution may Pareto dominate the equilibrium associated with another distribution of the same aggregate income. We explore this possibility and examine its implications for Pareto-improving policy intervention by undertaking a comparative static analysis of Pareto-improving tax-financed increases in pure public good provision. Under some circumstances, a government can engineer policies that raise public good provision while increasing the well-being of contributors and noncontributors. Crucial factors promoting this outcome involve a large number of noncontributors, a high marginal valuation for the public good by non-contributors and a large aggregate response of contributors to changes in their income.

In recent years considerable attention has been devoted to differences across countries in the institutional environments in which corporations operate, and the consequences of these institutional differences for corporate performance. In this paper we test for the presence of differences in corporate performance across 38 countries, and in particular whether these differences are related to the types of legal systems existing in each country. To measure corporate performance we estimate returns on investment relative to company costs of capital in each country. We find significant differences in the investment performance of corporations across our sample of countries. Companies in countries with English-origin, common law legal systems perform significantly better on average than do those in civil law systems.

Economists have been concerned with price dispersion for apparently homogeneous goods for a long time. Many models have been developed which explain price dispersion by imperfect consumer information about prices in the market. There are few empirical tests of these models. Moreover, these tests at most show that the observed price dispersion is consistent with the models; however, an alternative explanation of price dispersion is always that the goods sold are not homogeneous from the consumers' point of view but that there are quality differences which cannot be observed by the empirical economist. Since both models yield different welfare conclusions, it would be important to distinguish empirically between the two explanations. We use data from the German life insurance industry for tests of the two models. Our data support the equilibrium price dispersion model.