This paper examines optimal fiscal and regulatory policies within a New Keynesian (NK) framework that incorporates household fairness concerns regarding firm pricing behavior. Households derive utility not only from consumption and leisure but also from their perception of price fairness, which is influenced by biased beliefs about the price markup. These misperceptions reduce the effective price markup, as firms adjust pricing to avoid a demand backlash. The planner faces a trade-off between addressing monopolistic distortions, traditionally managed through the labor subsidy, and mitigating fairness concerns amplified by behavioral biases as spending increases. When biases are mild, the optimal fiscal policy remains the labor subsidy, though smaller than in the standard NK model. As fairness dynamics strengthen, the optimal policy shifts to a labor tax aimed at alleviating perceived unfair pricing, albeit with additional welfare losses. Capping the price markup can replicate the labor subsidy under moderate biases but loses effectiveness as fairness intensifies. These findings provide theoretical insights into how fairness-related behavioral distortions shape policymakers’ trade-offs and inform the design of optimal fiscal and regulatory policies.

We provide a simplified test to determine if choice data from a two-commodity consumption set satisfies the Generalized Axiom of Revealed Preference (GARP), and thus the preference or utility maximization hypothesis. We construct an algorithm for this test and illustrate its application on experimental choice data.

A number of studies demonstrate that individual choice can be influenced by alternatives which should be irrelevant according to standard choice theory. In these studies it has been observed that introducing a decoy option, which is either asymmetrically dominated by a target option or which makes the target a compromise, increases the likelihood of choosing the target. A common feature of earlier research on decoy effects is the use of hypothetical choice tasks. The aim of this paper is to investigate decoy effects in a properly controlled experiment where subjects are given real incentives. Here, monetary gambles are used as alternatives. The results demonstrate that decoy effects persist despite the use of real incentives.

Afriat’s (Int Econ Rev 14(2): 460–472, 1973) critical cost efficiency index is often used to measure the extent to which experimental choice data violate the axioms of revealed preference. Under certain conditions, the index yields a value of one—which typically signifies rational choice—when, in fact, the choice violates the axioms. We term this a cost efficient violation (CEV) of the axioms, clarify the conditions under which it arises, and find that CEVs comprise the majority of violations in three of four studies reviewed. We suggest changes in experiment design to eliminate or reduce the likelihood of CEVs.

It is shown that for two dimensional commodity spaces any homothetic utility function that rationalizes each pair of observations in a set of consumption data also rationalizes the entire set. The result is used to provide a simplified nonparametric test for homotheticity of demand and a measure for homothetic efficiency. The article thus provides a useful tool to screen data for severe violations of homotheticity before estimating parameters of homothetic utility functions. The new test and measure are applied to previously published data.

How do risk attitudes change after experiencing gains or losses? For the case of losses, Imas (Am Econ Rev 106:2086–2109, 2016) shows that subsequent risk-taking behavior depends on whether these losses have been realized or not. After a realized loss, individuals’ risk-taking decreases, whereas it increases after an unrealized (paper) loss. He refers to this asymmetry as the realization effect. In this study, we derive theoretical predictions for risk-taking after paper and realized gains, and for investment opportunities with different skewness. We experimentally test these predictions and, at the same time, replicate Imas’ original study. Independent of a prior gain or loss, we show that subsequent risk-taking is higher when outcomes remain unrealized. However, we find no evidence of a realization effect for non-positively skewed lotteries. While the first result suggests that the effect is more general, the second result reveals its boundary conditions.

We seek to isolate in the laboratory factors that encourage and discourage the sunk cost fallacy. Subjects play a computer game in which they decide whether to keep digging for treasure on an island or to sink a cost (which will turn out to be either high or low) to move to another island. The research hypothesis is that subjects will stay longer on islands that were more costly to find. Eleven treatment variables are considered, e.g. alternative visual displays, whether the treasure value of an island is shown on arrival or discovered by trial and error, and alternative parameters for sunk costs. The data reveal a surprisingly small sunk cost effect that is generally insensitive to the proposed psychological drivers.

We provide a generalized revealed preference test for quasilinear preferences. The test applies to nonlinear budget sets and non-convex preferences as those found in taxation and nonlinear pricing contexts. We study the prevalence of quasilinear preferences in a laboratory real-effort task experiment with nonlinear wages. The experiment demonstrates the empirical relevance of our test. We find support for either convex (non-separable) preferences or quasilinear preferences but weak support for the hypothesis of both quasilinear and convex preferences.

The paper considers what can be inferred about experimental subjects’ time preferences for consumption from responses to laboratory tasks involving tradeoffs between sums of money at different dates, if subjects can reschedule consumption spending relative to income in external capital markets. It distinguishes three approaches identifiable in the literature: the straightforward view; the separation view; and the censored data view. It shows that none of these is fully satisfactory and discusses the resulting implications for intertemporal decision-making experiments.

We establish whether the efficacy of mutual monitoring in fostering cooperation is dependent on the degree of approval motivation within teams. Approval motivation is defined as the desire to produce positive perceptions in others and the incentive to acquire the approval of others as well as the desire to avoid disapproval, (Martin in J Personality Assess 48(5):508–519, 1984). Contrary to the theoretical predictions, the results from the experiment suggest that mutual monitoring was not effective in fostering cooperation in teams. Furthermore, the efficacy of mutual monitoring in fostering cooperation was not correlated with the degree of approval motivation within teams.

Previous research links organic purchasing motivations to personal and family health. We conduct a national survey to explore whether this preference intensifies when preparing family meals, especially during Thanksgiving. We find that approximately 83% of consumers change their consumption habits for Thanksgiving, with a notable preference for organic products. Results from the choice experiment indicate willingness to pay premiums for Thanksgiving-themed items, especially those with USDA-certified organic or certified naturally grown labels. These findings underscore policy initiatives that strengthen consumer understanding of organic certifications and support producers in securing them, capitalizing on the seasonal demand surge.

Compared to other policy instruments that aim to change consumer behavior, information provision is perhaps the least controversial. An important question is how information in the form of carbon labels can contribute to direct food consumption toward reduced climate impact. From a policy guidance perspective, there is a need to identify how the labeling strategy affects consumers’ ability to identify lower emitting food products and the behavioral change due to carbon information. Key aspects of a carbon label are discussed, as well as the implications of different labeling schemes. Drawing on economic and behavioral theories, we propose that, to assist consumers in identifying changes in consumption that contribute to significant reductions in their climate impact, a carbon label must enable comparisons between product groups and not only within narrowly defined product groups. This suggests mandatory labeling, since producers of high-emission products are less likely to display such labels. However, it is important to consider both costs and benefits of labeling schemes and to consider complementing labeling with other policy instruments.

Question effects are important when designing and interpreting surveys. Question responses are influenced by preceding questions through ordering effects. Identity Theory is employed to explain why some ordering effects exist. A conceptual model predicts respondents will display identity inertia, where the identity cued in one question will be expressed in subsequent questions regardless of whether those questions cue that identity. Lower amounts of identity inertia are found compared to habitual inertia, where respondents tend to give similar answers to previous questions. The magnitude of both inertias is small, suggesting they are only minor obstacles to survey design.

There is a shift in livestock auction sales in consolidation of live markets and movement toward virtual marketplaces. We examine buyer preferences for nonracing stock-type horses sold through virtual auctions to better understand how animals are sold and their valuation. A shift towards online sales of equine has impacted the number of potential buyers through increased exposure to sale horses. Using data collected from online auctions, we estimate factors influencing propensity to sell as well as price determinants in this market platform. We find many factors contribute to the likelihood of a horse selling and to the final sale price.

We investigate food preference changes in Russia that may have resulted from political, economic, and other changes. Our empirical framework utilizes advances in consumer theory and exploits provincial-level panel data on food consumption and supply shifters to identify price and income effects. Our findings indicate that consumers underwent a structural preference change that began in 2007 and continued into 2014. To illustrate the magnitude of this change, we contrast economic effects for select food commodities across regions. The new insights will be useful in designing timely and effective food and trade policies, as well as informing strategy decisions of agribusiness industry players.

Price elasticities and flexibilities for frozen dessert products were estimated from weekly scanner data, with emphasis on functional form selection, system misspecification testing, and endogeneity testing. Reciprocals of elasticities and elasticity matrix inversion were invalid means of obtaining flexibility estimates, leaving direct estimation as the only viable, albeit resource-intensive, approach.

With this study, we investigate the effects of changes in economic factors on body weight by constructing a utility theoretic model. The model is empirically estimated by combining data on individuals' body weight, demographic and physical activity information, and state-level measures pertaining to the prices of food away from home, food at home, and wages. By combining these data sources, we aim to estimate directly the weight effects of price and income changes. The empirical analysis suggests that decreasing the price of food at home could decrease body weight, a finding which has important public policy implications.

We generalise the standard joy-of-giving bequest motive by including inter vivos gifts. Within a life-cycle framework, we analyse the implications of the choice of different discount factors for the utility of gifts and bequests. For a linear utility of giving, we characterise the gift and bequest pattern of a liquidity constrained individual over the life-cycle. We find that discounting at the interest rate is very convenient as the linear utility parameter can be interpreted as a summary measure for the strength of the motive of giving, net of all gift and bequest timing issues over the life-cycle.

L'article applique à la micro-économie une distinction classique en philosophie du langage, celle des propositions analytiques et synthétiques. Un article ultérieur la rapprochera de la distinction épistémologique des connaissances a priori et a posteriori. On commence par reprendre les définitions principales de l'analytique et du synthétique, et l'on rejette les objections célèbres que Quine a dirigées contre elles. On montre ensuite comment ces définitions opèrent sur la théorie des biens Giffen et des biens substituts. La distinction de l'analytique et du synthétique permet de clarifier des options que les micro-économistes laissent implicites, au risque de tomber dans des pièges sémantiques; en l'occurrence, elle vient renforcer la critique déjà faite de la définition hicksienne des substituts. A titre annexe, on montre que la méthodologie économique identifie incorrectement les propositions analytiques aux tautologies, et les propositions synthétiques à celles qui sont testables.