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Many models in operations management assume that faced with excess inventory, retailers offer price discounts to increase sales. This discount is assumed to be a certain dollar amount per unit or a certain percent of the regular price. However, many retailers use nonlinear pricing, e.g. "Buy one, get one for 50% off" and "Buy two, get the third free", which we refer to as BOGO. We analyze BOGO promotions within the newsvendor model framework and identify the reasons for its popularity among retailers. We describe the type of products for which BOGO promotions are suitable, identify the optimal BOGO discount, and its effect on the retailer's profit. We compare the BOGO promotions to the straight price reduction promotions and analyze the newsvendor's optimal choice between them. We also examine the two promotions in the presence of strategic consumers. We find that for reasonable values of consumer marginal utility and a given order quantity, BOGO reduces strategic consumers' chances of obtaining a unit at a discount and their incentive to wait. Therefore, the newsvendor orders a larger quantity with BOGO than with a straight price reduction. Thus, BOGO promotions can be used by the newsvendor to counter strategic consumer behavior. Also, we find that in the presence of strategic consumers, there are some cases where it is optimal for the retailer to wait and discount the product at the end of the season. However, with BOGO it is always optimal to offer the BOGO promotion at the start of the season when realized demand is low.

Consider a rm owned by shareholders with heterogeneous beliefs and run by a manager who chooses random production plans. Shareholders do not observe the chosen plan but only its realization. The nancial market consists of assets contingent on production realizations. A contract for the manager species her compensation as a function of the rms production and possibly some restrictions to trade in the nancial market. Shareholders are unrestricted. We dene a concept of equilibrium between the manager and shareholders such that the equilibrium production plan is unanimously preferred by the manager and the shareholders, markets clear and the manager has no incentive to cheat. We rst analyze the properties of such equilibria and in particular show that the contract should restrict the manager from trading. We next provide a framework where such equilibria exist. We lastly study the properties of equilibrium compensations when shareholders have beliefs that can be ranked in terms of optimism towards the equilibrium plan. Specic attention is given to their departure from linear compensations.

We study the effect of product liability on the incentives of product and safety innovation. We first develop a monopoly model in which a firm chooses both product novelty and safety in an innovation stage followed by a production stage. A greater product liability directly increases the marginal benefit of producing a safer product and thus increases product safety. However, as product liability increases, product novelty may increase or decrease, depending on the relative strengths of demand-shifting and cross-R&D effects identified in the model. Consequently, a greater product liability may decrease consumer welfare and thus total welfare. We extend the results to an oligopoly model with differentiated products and study the effects of competition measured by the number of firms and the degree of product substitutability. We find that equilibrium product novelty and safety decrease with the number of firms but exhibit non-monotonic relationships with the degree of product substitutability.

This paper studies a multi-prize imperfectly discriminatory contest with symmetric risk-averse contestants. Adopting a multi-winner nested Tullock contest model, we first establish the existence and uniqueness of a symmetric pure-strategy equilibrium under plausible conditions. We then investigate the optimal prize allocation in the contest. Our analysis provides a formal account of the incentive effects triggered by a variation in the prevailing prize structure when contestants are risk averse. We demonstrate that contestants' incentive subtly depends not only on the degree of a contestant's risk aversion but also that of his prudence. The former affects the marginal benefit of effort, while the latter affects the marginal cost. We derive sufficient conditions under which a single-(multi-)prize contest would be optimal when the contest designer aims to maximize total effort. We also discuss in depth the roles played by risk aversion and prudence in optimal prize allocation.

Since Weitzman (1974) raised a question on which is the better environmental policy tax or standard under asymmetric information, many authors have proposed alternatives to both tax and standard or emission trading scheme. The policy recommended in this paper is also one of them. The policy tells us that the government can set tax rates at arbitrary levels during the trial runs. The government can extract private information from observable abatement activities of firms in the trial periods. However, the government needs not only tax but also the standard for abatement and the penalty against violating the standard, because the firms may respond strategically to the tax rates set in the trial periods. Those supplemental policy devices can eliminate any strategic incentive by equating the marginal benefit and the marginal cost. As a result, we can attain the first best after the trial periods.

We consider a spatial extension of genuine savings and wealth as a capital-based indicator of sustainability. In both inefficient and efficient economies, where well-being is locally or globally maximized, respectively, the well-known Hotelling rule and Hartwick (Dixit–Hammond–Hoel) investment rules and results are extended, depending on the extent of the spatial diffusion of natural capital. It is shown that the net present value of any future change in neighboring resource stocks affects the current change in intergenerational well-being. Numerical examples show the relevance of such parameters as the diffusion rate, discount rate, and marginal utility of consumption. Moreover, they suggest the exact adjustments to be made in aggregating or disaggregating the sustainability of different spatial units, which is not addressed in the current practice of green or wealth accounting.

This paper introduces into the discussion of the stability of quantity-oligopoly equilibrium, the role that the slope of the marginal utility curve and of market entry in shaping the equilibrium and its stability. It does so by considering inverse multivariate linear demand functions and the notion of stability related to multivariate mean value theorem. The equilibrium cluster of Cournot sellers is determined by the stability dictated by this theorem and the rate of decline of the marginal utility of the product under consideration. Strategic complementarity is found to be the case under product heterogeneity, while the strategic substitutability associated with product homogeneity, induces a modification of Cournot limit theorem.

That wealth has diminishing marginal utility is a fact of life, and that people be sensitive to their current level of wealth when deciding whether to pursue additional wealth is a requirement of rational choice. A series of experiments, spanning diverse contexts, reveal marginal-utility neglect—that people are rather insensitive to their current wealth when deciding how much effort to expend to acquire a monetary reward (e.g., how long to walk to claim a voucher). Moreover, the experiments demonstrate that a marginal-utility-prompting manipulation, which prompts people to consider their current wealth and their need for the reward given their current wealth, produces a significant sensitization effect—making financially richer (vs. less rich) individuals less (vs. more) willing to seek the reward. This manipulation is more effective than either prompting people to consider their current wealth alone or consider their need for the reward alone, suggesting that marginal-utility prompting does not merely draw people’s attention to their current wealth or merely draw their attention to their need for the reward, but links the two elements. This research elucidates the psychology of marginal utility and yields implications beyond the pursuit of monetary rewards.

This paper studies incentive-based subsidy to transit systems to improve performance. It derives a formula for optimal effort that equalizes marginal cost and marginal benefit and derives some prin...

As a typical online word-of-mouth, online commentary has an important impact on consumer purchasing decisions. Therefore, it is very important to study the behavior of consumer online commentary. In this study, the user's behavior is quantitatively analyzed based on the real data of the website, and a user behavior dynamics model under the influence of marginal utility is constructed. The study found that the user comment behavior is subject to power law distribution, different levels of user activity are different and there is a tendency to rise first and then decline. This study provides a theoretical basis for the website to adjust customer relationship management in a timely manner.

Purpose Over the past 25 years, direct cash transfers (often abbreviated as direct benefit transfer, DBT) to the poorer section of the society are gaining popularity over explicit subsidization of prices of essential commodities. One of the main arguments in favor of DBT is that it will cost the government less money and yet, the consumer benefit will be high. This paper aims to examine the proposition critically. Removal of price support exposes the consumers to market risk, and any income support programme must compensate the consumers accordingly. Design/methodology/approach The authors use a theoretical study where the model of a representative consumer under different specification of preferences is used to compare programme costs under price stabilization and income support programmes. Findings What the authors show in the paper that the comparative cost of the programmes crucially depends on the nature of preferences, as well as the good under question. For certain specifications of the indirect utility function and the marginal utility of money, one programme may cost less than the other. Any policymaker must take account of such nuances before making a blanket prescription. Research limitations/implications The main limitation is that only a representative consumer is taken. Practical implications The specification of indirect utility function plays a decisive role in deciding, which one these two policies, DBT or stabilizing price at a fixed level. Originality/value The main novelty of the paper is in the different specifications of the indirect utility function considered in the paper.

To investigate whether rent‐seeking discourages productivity, we consider a third‐market model, in which a domestic firm and a foreign firm engage in both Research and Development (R&D) and output competition. We show that the relationship between rent‐seeking and productivity depends on two forces. On the one hand, rent‐seeking increases the marginal benefit of R&D and encourages productivity. On the other hand, a lower production cost due to R&D enables the government to extract the rent from the firm to a greater extent and discourages the productivity. Which force is dominant depends on the level of corruption or, as an alternative interpretation, the weight the government attaches to political contributions. Unlike the monotonic relationship proposed by the literature, we find a non‐monotonic relationship between rent‐seeking and productivity.

Significance We confirm that rats can act as rational economic agents, making choices about how much work to do to obtain a reward in a way that optimally trades off the value of the reward against the cost of the effort. Contrary to the notion that bigger rewards are more motivating, rats worked harder in economies where rewards were small, ensuring a sufficient minimum income of water. But they chose to earn and consume more water per day when water was “cheap” (available for little work). We present a mathematical model explaining why rats work when they do (surprisingly, not just when they are thirsty) and suggesting where in the brain animals might compute the current value of working for water., In the laboratory, animals’ motivation to work tends to be positively correlated with reward magnitude. But in nature, rewards earned by work are essential to survival (e.g., working to find water), and the payoff of that work can vary on long timescales (e.g., seasonally). Under these constraints, the strategy of working less when rewards are small could be fatal. We found that instead, rats in a closed economy did more work for water rewards when the rewards were stably smaller, a phenomenon also observed in human labor supply curves. Like human consumers, rats showed elasticity of demand, consuming far more water per day when its price in effort was lower. The neural mechanisms underlying such “rational” market behaviors remain largely unexplored. We propose a dynamic utility maximization model that can account for the dependence of rat labor supply (trials/day) on the wage rate (milliliter/trial) and also predict the temporal dynamics of when rats work. Based on data from mice, we hypothesize that glutamatergic neurons in the subfornical organ in lamina terminalis continuously compute the instantaneous marginal utility of voluntary work for water reward and causally determine the amount and timing of work.

In this article we investigate different market structures where decision makers are incentivized by both profit and revenue. Our innovation is that we consider managers that evaluate revenue in a non-linear way, exhibiting diminishing marginal utility. This implies that incremental changes in revenue—for example due to demand shocks—generate production choices that depend on the existing revenue base of the firm. We show that this intuitively appealing extension reverses some conventional results: decision makers may increase output in the presence of negative demand shocks, which depends on the concavity of their utility function with respect to revenue.

Kolokolchykova I.V. PRICE IN THE SYSTEM OF MARKET CHARACTERISTICS OF FRUIT AND BERRY PRODUCTS Purpose. The aim of the article is the analysis of the economic category “price” in the system of market characteristics of fruit and berry products in its theoretical and practical aspect. Methodology of research. The method of complex approach is used in the process of research of theoretical aspects of economic category “price”. Using the method of systematic analysis made it possible to identify the main groups of factors that influence the pricing of fruit and berry products. The monographic method has made it possible to detect changes in the price level for the products of the industry over the last 6 years in the context of each month. The method of comparisons is used in the process of analysing the impact of price and shaping factors, assessing the level of influence of constituents on the market products of the industry and finding ways to solve them in an effective way. Findings. It is established that, in theory, the price of production has a close relationship with labour theory and marginal utility theory; in practical terms, this category reflects the market levers of influence both on the market and on business entities. The factors influencing the price of fruit and berry products at micro and macro levels are systematized and grouped into blocks. The cyclicality of changes in the price level for fruits and berries during the year is revealed. The range of problems is outlined and a vector of action is identified with the aim of raising the price level and increasing the efficiency of the horticulture industry as a whole. Originality. The grouping of factors influencing price formation in the system of market characteristics of fruit and berry products is proposed. This approach makes it possible to assess the impact of each factor individually and to calculate the degree of risk in the directions, while at the same time looking for directions to reduce that impact. Practical value. The proposed research findings are useful and have practical value for fruit and berry producers. The ability to analyse the factors influencing the pricing and their expert evaluation will allow entrepreneurs to determine the direction of consolidation of actions in the market, will give impetus to the processes of cooperation in matters of storage, sale or processing of products. Analysis of the sale price during the year is a valid substantiation for the introduction of changes in the commodity policy of enterprises, namely the increase in the share of products of early and late varieties, which are always sold at the highest prices. Key words: demand; supply; price; pricing; fruit and berry market; market players; consumers. Normal 0 false false false RU X-NONE X-NONE /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Обычная таблица"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin:0cm; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman","serif";} Normal 0 false false false RU X-NONE X-NONE MicrosoftInternetExplorer4 Vlasova, N.O. (2012), Formuvann i ja efektyvnoi ts inovoi polityky pidpry i emstv torhivli na prodovolchi tovary [ Formation of effective pricing policy of trade enterprises for food products ], monograph, KhDUKhT, Kharkiv, Ukraine, 376 p. Melnyk, L.L. (2012), “ Price policy of the state in the context of non-equivalent inter-branch relations in the agroindustrial complex ”, Ahrosvit, no. 2, pp . 13-19. Symonova, T.A. (2011), “ The influence of factors on the pricing of agricultural products ”, Ahrosvit, no . 1, pp . 57-60. Nevlad , V . F . (2010) , “ State support for price stability at the market of agricultural complex of Ukraine ”, Ekonomika : problemy teorii ta praktyky : zbirnyk naukovykh prats , Iss . 265 ( 5 ) , pp . 78-84. Chychulina , K . V ., Rizhko , I . V . and Matiushenko , K . M . (2018), “ Features of pricing policy formation at agricultural enterprises ” , Efektyvna ekonomika, no. 6, available at : http :// www . economy . nayka . com . ua ( access date S eptember 28, 2019). Sabluk , P . T . (2000), “ About the strategy of transformation of agroindustrial complex and ensuring of food security of Ukraine: scientific report ”, Ekonomika Ukrainy , no . 8, pp . 3-36. State Statistics Service of Ukraine (2019), Silske hospodarstvo Ukrainy 2018 rik : statystychnyi zbirnyk [Agriculture of Ukraine 2018: statistical compilation] , Kyiv , Ukraine, 190 p. Herasymchuk , K . Yu . (2008), “ Methodological aspects of pricing of products for industrial and technical purposes ” , Visnyk Natsionalnoho universytetu “Lvivska politekhnika” . Problemy ekonomiky ta upravlinnia , no . 611, pp . 118-124. Pryimachuk , L . and Koval , L . (2009), “ Analysis and evaluation of formation of effective functioning of the market of fruits and berries in the Western region of Ukraine ”, Visnyk LNAU , available at : http://base.dnsgb.com.ua/files/journal/Visnyk-Lvivskogo-Nats-agrar-univer ( access date S eptember 28, 2019). Burliai , O . L ., Kovalenko , O . S . and Pidopryhora , O . V . (2016), “ Competitiveness of horticultural products of Ukraine in the conditions of deepening of European integration processes ”, Zbirnyk naukovykh prats Umanskoho natsionalnoho universytetu sadivnytstva , Iss . 89 ( 2 ) , pp . 73-91. Shumeiko , A . (2003), “ Market of fruits and berries of Ukraine ”, Ekonomika Ukrainy , no . 10, pp . 55-61.

Crowdsensing is a new paradigm of applications that takes advantage of mobile devices to collect sensing data. Tasks in crowdsensing will consume users’ resources so that incentive mechanisms are necessary to encourage users’ participation. Existing incentive mechanisms are based on traditional economics, which have two common problems: 1) the utility of different tasks is fungible and 2) users’ behavioral preferences are consistent. Mental accounting (MA) theory in behavioral economics proves that the utility of tasks obtained in different ways is nonfungible and people’s preferences of behavior are inconsistent. Reference dependence, loss aversion, and sensitivity decline are the three characteristics of MA. Reference dependence means people evaluate outcomes relative to a reference point, and then classify gains and losses. Loss aversion refers to people’s tendency to prefer avoiding losses to acquiring equivalent gains. Sensitivity decline means that the marginal utility of MA about gains and losses is diminishing. Thus, this paper proposes an incentive mechanism called the MA auction incentive mechanism (MAAIM). Based on reference dependence, coupled with sensitivity decline, we establish an external reference environment and an internal reference point to motivate users. Based on loss aversion, we design a payment mechanism to encourage users to improve their data quality. The extensive simulation results show that MAAIM improves the number of users participating in sensing tasks, the utility of the sensing platform, and the quality of data collected by users.

When the discount factors that infinite lived consumers use at each date are not predetermined but are instead chosen within some set, depending on what the consumption plan is, impatience might not hold. More precisely, if the utility is the infimum of discounted utilities over that set of discount factor sequences, then preferences may be just upper semi-impatient. Such lack of lower semi-impatience, which we refer to as wariness, consists in neglecting distant gains but not distant losses. Examples are the precautionary case (a concern with the worst lifetime outcome) and the habit persistence case (a concern with a fall in living standards). The implementation of efficient allocations by trading assets sequentially requires taxes that avoid excessive savings by raising the opportunity of cost of saving up to the point of matching the marginal benefit of dishoarding at distant dates. Taxes on equilibrium plans are zero in many contexts.

In policy applications, industrial economists are wont to invoke the Kaldor—Hicks potential compensation principle to justify the use of deadweight loss as a measure of the welfare cost of market power. This usage rests on two assumptions. One of these assumptions, that changes in consumer and producer surplus are weighted equally, is well understood. The other assumption, that the marginal utility of income is constant, receives less attention. In a simple model, I show that if there is decreasing marginal utility of income, the use of deadweight loss as an index of market performance rests on shaky ground.

This paper presents a new mixed demand model for measuring the value of public goods in an intertemporal optimization framework. From the specification of an indirect utility function allowing for public goods, direct demand functions for private goods are derived and estimated jointly with the Euler equation for intertemporal consumption behavior, using US data. This allows us to identify the marginal utility of private consumption and to obtain the inverse demand or shadow price of a public good, which is then related to its observed price to assess whether the public good is efficiently provided. There is evidence, though suggestive, that the public good as measured by national defense in the USA has been inefficiently provided over the past decades.

The Kaldor–Hicks potential compensation principle underlies partial equilibrium welfare analysis in imperfectly competitive markets. It depends on the assumptions that changes in consumer and producer surplus are weighted equally and that the marginal utility of income is constant. I show that if the first assumption is followed but there is decreasing marginal utility of income, the potential compensation principle does not give satisfactory indications of market performance.

Purpose The authors consider a dynamic emission-reduction technology investment decision-making problem for an emission-dependent dyadic supply chain consists of a manufacturer and a retailer under subsidy policy for carbon emission reduction. The consumers are assumed to prefer to low-carbon products and formulate a supply chain optimal control problem. Design/methodology/approach The authors adopt differential game to analyze investment strategies of cost subsidy coefficient with respect to vertical incentive of a manufacturer and a retailer. A comparison analysis under four different decision-making situations, including decentralized decision-making, centralized decision-making, maximizing social welfare, is obtained. Findings The results show that the economic benefit and environmental pressure have a win–win performance in centralized decision-making. In four different game models, equilibrium strategies, profits and social welfare show changing diversity and have a consistent development trend as time goes on. Research limitations/implications The authors estimate the demand function is a linear function in this paper. According to the consumers’ preference to low-carbon products, consumer’s awareness meets the law of diminishing marginal utility like advertising goodwill accumulation. The carbon-sensitive coefficient might be a quadratic expression, which will complicate the problem and be consistent with reality. Practical implications It captures that there is a necessity to strengthen cooperation and exchange of carbon emission technology among the enterprises by simulation of different decision-makings when government granted cost subsidy. Social implications The results provide significant guidelines for the supply chain to make decision-makings of emission-reduction technology investment and relevant government departments to determine emission subsidies costs. Originality/value An endogenous subsidies coefficient is produced by the social welfare function. Distinguished from previous study, it also considered the influences of carbon emission trade policy and consumer preference.

I extend the consumption capital asset pricing model to incorporate expanding product variety over time and states of nature. In the model, consumers have a love of variety, and consumption consists of different components: product groups and brands. By raising future marginal utility, growth in product groups increases the incentive to save and reduces the risk-free rate. By making marginal utility more volatile, variation in brand and quality growth magnifies consumption risk and raises the equity premium. Embedding new goods in a long-run risk setting has similar implications.

We experimentally investigate the effects of conflict budget on conflict intensity. We run a between-subjects Tullock contest in which we vary the contest budget from Low to Medium to High, while keeping the risk-neutral Nash equilibrium bid the same. We find a non-monotonic relationship: bids increase when the budget increases from Low to Medium, but decrease when the budget further increases from Medium to High. This can happen for players with concave utility, if a high budget has a wealth effect that reduces the marginal utility of winning resulting in lower bids. To test this, we run a Wealth treatment in which the budget remains the Medium, but contestants receive a fixed payment (as wealth) independent of the contest outcome. The bids in the Wealth treatment are lower than the Medium treatment, but are not different from the High treatment, supporting the hypothesis of a wealth effect. We then support this empirical observation by a theoretical model with risk-aversion.

The convenience of mobile and biometric payments are making these systems increasingly popular in the Korean offline payments market. However, the diffusion of alternative offline payment systems such as mobile or biometric payments is slower than expected. Therefore, the purpose of this study is to analyze consumer preferences for payment systems and examine the effects of consumers’ characteristics on the marginal utility of mobile and biometric payments. It uses the discrete choice experiment consisting of five major attributes to estimate preference parameters, and analyzes the data using the mixed logit model. The results show that consumers preferred cards to mobile and biometric payments even if they displayed the same level of related attributes. The scenario analysis results based on consumer preferences also showed the need to develop the overall attribute level of mobile and biometric payments. Furthermore, consumers’ positive attitude or innovativeness toward hi-tech products has a significantly positive effect on preferences for alternative payments. Based on the results, this study provides theoretical implications for consumer preference studies on payment systems and proposes market strategies for the diffusion of major next-generation payment systems from multiple aspects.

In this paper, we present a model that enables us to calculate the optimal income tax rate, given a specific utility function from leisure and consumption of private and public goods. The main contribution of our paper is presenting a new approach for determining the optimal tax rate: instead of focusing on the social planner’s point of view, we focus on the private agent’s point of view. We assume a given labor supply function and calculate the loss of income which equals increased government supply following tax imposition. Taking into consideration the loss of utility following decreased private consumption as well as increased public utility following increased leisure and public consumption, we calculate the income tax rate that would maximize an agent’s benefit. We examined our model by gradually changing labor supply elasticity, wage per hour, and the parameter of marginal utility from public consumption. We find that as labor supply elasticity increases, the optimal tax rate should be lower. On the other hand, as wage per hour increases, the optimal tax rate should be higher. Finally, as the parameter increasing utility from public consumption is lower, the optimal tax is lower.

When individuals extract benefits from multiple resources, the decision they face is twofold: besides choosing how much total effort to exert for extraction, they must also decide how to allocate this effort. We focus on the allocation aspect of this choice in an iterated game played on bipartite networks of agents and common-pool resources (CPRs) that degrade linearly in quality as extraction increases. When CPR users attempt to reallocate their extraction efforts among resources to maximize their own payoffs in the very next round (that is, myopically), collective wealth is increased. Using a heterogeneous mean-field approach, we estimate how these reallocations affect the payoffs of CPR users of different degrees within networks having different levels of degree heterogeneity. Focusing specifically on Nash equilibrium initial conditions, which represent the patterns of over-exploitation that result from rational extraction, we find that networks with greater heterogeneity among CPR degrees show greater improvements over equilibrium due to reallocation. When the marginal utility of extraction diminishes, these reallocations also reduce wealth inequality. These findings emphasize that CPR users' adaptive reallocations of effort-a behavior that previously-studied network evolutionary game models typically disallow by construction-can serve to direct individuals' self-interest toward the collective good. Nanyang Technological University Published version The authors wish to thank Tan Ming Zhen and Fatimah Abdul Razak for helpful comments. This work was supported by Nanyang Technological University [Grant Number M4081975].

We extend upon Reeves (2020), who attempts to demonstrate that classical violations of the Law of Demand are in actuality the result of a violation of the ‘ceteris paribus’ assumption. For example, price changes in Giffen goods create a chain reaction from the Giffen good through a substitute and back to the Giffen good. Specifically, a price change in the Giffen good is so large wrt the consumer’s income that it creates an income effect on a substitute good, whose decrease in demand sends a shock to the Giffen good’s demand curve, shifting it out through a change in preferences and, hence, violating ceteris paribus. To understand how preferences change, consider the consumer equilibrium condition, MU(x) = λp. When price increases and income (i.e. λ) is held constant, marginal utility must increase. In order for x to increase with price, marginal utility must increase with consumption, violating the Law of Diminishing Marginal Utility. Hence, the change in price must precipitate a change in preferences because for some values of x preferences comport with the Law of Diminishing Marginal Utility whereas for other values of x preferences do not. In this paper, we respond to the non-technical aspects of Jensen and Nolan (2007) by suggesting that the price and demand changes that they are measuring are likely changes along the supply curve, not an upward sloping demand curve. One possible reason for the purported oversight is that the research explores Giffen effects in (good1 , good2 )-space, which cannot capture shifts in the demand curve, defined in (good1 , price1 )-space.

The study tries to recognize the behaviour of the consumer with respect to the opportunity cost and marginal benefit associated with the commodity. The research tries to evaluate the factors and identify behavioural traits of consumers if they exist in decision making. The study also tries to recognize the prime factors responsible for directing the consumer’s purchasing decision towards the commodity. The study finds out that the Behavioural traits influence the decision-making approach while purchasing the commodity and how prominent factors direct the consumer decision.

The authors consider the limits of the efficiency of integration of enterprises in the framework of globalization and of the variety of economic relations of producers in the modern market. Integration processes are typical for a market economy that seeks to minimize costs to maximize profits. The authors present the characteristics of the integration with regard to its determination into property. Also the characteristic of globalization, on essence and the contents similar to integration is given. The authors consider the factors of integration in the global world, the impact of which limits the growth of integrated systems, regardless of whether they are built within a single enterprise or within other different economic entities, including interstate integration. The authors believe that the limit values characterize the process of integration, including the dynamics of marginal utility and the dynamics of decreasing productivity are equally applicable to describe the models of integration growth. On the basis of the Gauss model and the theory of fuzzy sets, a model of the marginal efficiency of integration with the construction of the author’s model for assessing the consequences of integration growth that are not comparable in physical units is proposed. The authors show the optimal point of integration in the context of globalization and a model for assessing the degree of monopolization of the company as a negative result of integration.

According to the law of diminishing marginal utility, the marginal utility when consumers purchase a certain product shows a diminishing trend. As a special product, cultural tourism products, whether is the marginal utility produced during consumption also affected by the law of diminishing marginal utility. This paper takes “Impression Liu Sanjie” as the research object and uses a linear regression equation model to study the marginal utility of tourists “Impression Liu Sanjie” cultural tourism products. The results show that the marginal utility produced by tourists buying the cultural tourism products of “Impression Liu Sanjie” shows an obvious decreasing trend. The main reason is that the cultural tourism products of “Impression Liu Sanjie” lack innovation and strong brand characteristics, the overall scale is small, the positioning is not accurate, etc., affected by the competition of homogenized products in the surrounding area, and the return rate of tourists is low. Moreover, there is a gap between existing products and the development trend of high-end tourism, which cannot meet the needs of tourists for indepth experience and research tourism. Therefore, “Impression Liu Sanjie” needs to intensify innovation, fundamentally solve the problem of diminishing marginal utility, further stabilize the source of tourists and meet the needs of tourists for repeated consumption quality, and realize sustainable tourism development.

How can we assess whether macro-prudential regulations are having their intended effects? If these regulations are optimal, their marginal benefit of addressing externalities should equal their marginal cost of distorting risk-sharing. These risk-sharing distortions will manifest as trading opportunities that intermediaries are unable to exploit. Focusing in particular on arbitrage opportunities, I construct an “externality-mimicking portfolio” whose returns track the externalities that would rationalize existing regulations as optimal. I conduct a revealed-preference exercise using this portfolio and test whether the recovered externalities are sensible. I find that the signs of existing CIP violations are inconsistent with optimal policy.

Altruism between close relatives can be easily explained. However, paradoxes arise when organisms divert altruism towards more distantly related recipients. In some social insects, workers drift extensively between colonies and help raise less related foreign brood, seemingly reducing inclusive fitness. Since being highlighted by W. D. Hamilton, three hypotheses (bet hedging, indirect reciprocity and diminishing returns to cooperation) have been proposed for this surprising behaviour. Here, using inclusive fitness theory, we show that bet hedging and indirect reciprocity could only drive cooperative drifting under improbable conditions. However, diminishing returns to cooperation create a simple context in which sharing workers is adaptive. Using a longitudinal dataset comprising over a quarter of a million nest cell observations, we quantify cooperative payoffs in the Neotropical wasp Polistes canadensis, for which drifting occurs at high levels. As the worker-to-brood ratio rises in a worker’s home colony, the predicted marginal benefit of a worker for expected colony productivity diminishes. Helping related colonies can allow effort to be focused on related brood that are more in need of care. Finally, we use simulations to show that cooperative drifting evolves under diminishing returns when dispersal is local, allowing altruists to focus their efforts on related recipients. Our results indicate the power of nonlinear fitness effects to shape social organization, and suggest that models of eusocial evolution should be extended to include neglected social interactions within colony networks. Altruism towards distantly related recipients appears to reduce inclusive fitness and is difficult to understand. Here, the authors quantify cooperative payoffs in a Neotropical wasp with high levels of movement between colonies and use inclusive fitness theory to show that diminishing returns to cooperation explain this behaviour.

Incentive-Based Traffic Demand Management (IBTDM) is a strategy that adopts incentives to demotivate driving trips, or to redistribute demand across space and time. In this paper, we demonstrate the effectiveness of an IBTDM strategy that provides incentives to shift the commuting public's departure times so that the queueing delay is reduced. Based on Vickrey's bottleneck model, this paper considers the impact of incentive budget and market penetration rate on the optimal incentive profile for both homogeneous and heterogeneous commuters. The resulting departure pattern created by the optimal incentive profile achieves Pareto Optimality. The results indicate that an optimal incentive profile is “U-shape” during the morning peak with a limited budget. Additionally, we find that the marginal benefit of incentive is diminishing. Lastly, although Pareto improvement is achieved, commuters with higher values of time are found to benefit more under the optimal incentive design. It is also discovered that the incentive provider should promote IBTDM to the two ends of the income level of the commuters to achieve the lowest total system travel time under an insufficient marketing budget.

We study optimal mechanisms for a utilitarian designer who seeks to assign multiple units of an indivisible good to a group of agents with unit demand. The agents have heterogeneous marginal utilities of money. Heterogeneous marginal utilities of money may naturally arise in environments where agents have different wealth endowments. We show that the ex post efficient allocation rule is not utilitarian optimal in our setting. Firstly, a high willingness to pay may stem from a low marginal utility of money. Secondly, the transfer rule does not only facilitate implementation of the desired social choice function in our setting, but also directly affects social welfare. In the optimal mechanism, rationing may occur, which entails a conflict between ex ante and ex post efficiency. In an extension, we show that it is still not utilitarian optimal to allocate the good solely based on willingness to pay even when redistribution is not possible. Finally, we highlight how our mechanism can be implemented as an auction with minimum bids and bidding subsidies.

The International Seabed Authority might soon start collecting royalties from the mining of minerals on the bed of the deep sea beyond national jurisdiction. It has been proposed that this money be allocated to Global Public Good Institutions (GPGIs). This paper analyses a proposal that consists of allocating the money to GPGIs in proportion to the voluntary contributions that they receive from governments. I use a warm glow model to explain the status quo voluntary contributions to GPGIs as a Nash equilibrium. To predict how countries would adjust their contributions as a result of the proposed mechanism, I find a comparative statics formula depending on the elasticity of the marginal benefits created by the GPGIs. For the GPGIs dedicated to reducing deforestation, available marginal abatement cost curves suggest an elasticity of marginal benefits of -0.51. Decreasing marginal benefits lead to partial crowding out of voluntary contributions. However, there is a countervailing “matching reallocation effect” because by increasing their voluntary contributions to a GPGI countries cause a greater part of the money from the matching mechanism to go to this GPGI. Assuming that all GPGIs have the marginal benefit elasticity of -0.51, I show under some symmetry assumptions that the “matching reallocation effect” can cancel at most 22%\% of the crowding out caused as a result of the decreasing marginal returns, given the current pattern of voluntary contributions by countries. This sobering result potentially weighs in favor of alternative mechanisms that are less prone to crowding out effects, of which I discuss one.

This paper analyses, within a standard International Environmental Agreement game, the effect of the introduction of adaptation on climate negotiation. The model expands the existing literature by considering a double relation between the two strategies. The common assumption that higher mitigation decreases the marginal benefit of adaptation and vice versa is enriched allowing for the possibility that mitigation, leading to lower and more manageable damages, determines a greater effectiveness of adaptive measures. We find the possibility for adaptation and mitigation to be strategic complements and not, as commonly believed, substitutes. Yet, as already known from the literature, the presence of adaptation can determine upward-sloping mitigation reaction functions regardless of the strategic relationship between mitigation and adaptation. When this is the case, the grand coalition can form. Nonetheless, large participation can induce substantive welfare gains only if adaptation and mitigation are strategic complements.

Behavioral patterns in media consumption are changing. With the upcoming of video-on-demand platforms, so-called ‘binge-watching’ gained broad awareness. To the best of our knowledge, this is the first economic analysis explicitly on binge-watching. We approach the phenomenon by arguing that it follows fundamental patterns of addictive behavior. By applying concepts of rational addiction and behavioral economics, we derive: (i) a theoretical understanding of binge-watching behavior and (ii) factors increasing the likelihood of binging, especially with modern technologies and digital media services. The decision to binge depends on individual factors such as the accumulation rate of consumption capital (speed of learning and acquiring knowledge), opportunity costs, and the expected value of consumption. Consumption capital in the form of specific knowledge positively influences marginal utility. Moreover, binge-watching is not specific to online streaming services (video-on-demand), but modern platforms facilitate certain factors which increase the consumers’ engagement. Non-linear, self-organized video scheduling and a single narrative (coherent plot) increase the likelihood for consumers to binge.

Because heterogenous and unknown shareholder utility functions make it difficult to define a corporate objective common to all shareholders based on utility, the traditional theory of the firm concentrates on wealth maximization as the main measure of performance. Using the concept of ranked marginal utility, we develop a multi-dimensional measure of firm performance (TPM) that reflects the preferences of all risk averse shareholders towards all aspects of risk. We verify empirically that this is, in fact, the case for the first four moments of a large sample of US stocks over the period 2002–2010. Then, using the manager/shareholder agency conflict as the analytical framework, we show that TPM is a reliable, multi-dimensional performance measure and that one dimensional performance measures, such as mean returns, volatility or Tobin’s Q can lead to erroneous inference. By including shareholder preferences towards risk in the measure of firm performance as the corporate objective, we bring together the corporate finance literature and the literature on portfolio investment theory and practice.

Underestimation of risk as well as overestimation of mean outcomes has been widely documented in both experimental and field settings. These biases in perception are commonly referred to (either jointly or in isolation) as overconfidence. Several researchers have examined the implications of overconfident decision makers in the context of firms attempting to maximize profit in isolation. We review this literature and then extend this analysis to determine the impact of competitive market forces on overconfident firms. We generalize the analysis of Sandmo, who examined the impact of risk on competitive markets, extending his results to firms displaying overconfidence. We explore the case of imperfect competition, showing that overconfident firms may strictly dominate firms displaying perfect perception in a competitive market. Overconfident producers invest greater amounts and produce more than those with accurate perception. Under risk aversion, modest overconfidence leads to a higher average profit and greater variance of profits, leaving the producer a greater probability of surviving downward competitive pressures. Despite the greater variance of profits, if enough producers underestimate their risk, they should collectively drive decision makers with more accurate perceptions from the market. For this reason, overconfidence may be as important a determinant of market behavior as diminishing marginal utility of wealth or loss aversion.

In this article, we propose an optimal mechanism to reduce congestion when information is asymmetric. Each car driver receives a quantity of traffic rights such that his adjusted marginal benefit is equal to the marginal cost of congestion and payments are based on willingness to pay. We show that the level of congestion achieved is lower and each car user can receive more or fewer rights than under complete information. With symmetric beliefs, the payment rule results from a seconddegree price discrimination. When beliefs are asymmetric, it results simultaneously from a second-degree price discrimination and from a third-degree price discrimination and high willingness-to-pay car users are discriminated against. The revenue raised can be used to reduce distortionary taxes, thereby gaining public acceptability.

We establish conditions under which an English auction for an indivisible risky asset has an efficient ex post equilibrium when the bidders are heterogeneous in both their exposures to, and their attitudes toward, the ensuing risk the asset will generate for the winning bidder. Each bidder's privately known type is unidimensional, but may affect both his risk attitude and the expected value of the asset's return to the winner. An ex post equilibrium in which the winning bidder has the largest willingness to pay for the asset exists if two conditions hold: each bidder's marginal utility of income is log-supermodular, and the vector-valued function mapping the type vector into the bidders' expected values for the asset satisfies a weighted average crossing condition. However, this equilibrium need not be efficient. We show that it is efficient if each bidder's expected value for the asset is nonincreasing in the types of the other bidders, or if the bidders exhibit nonincreasing absolute risk aversion, or if the asset is riskless.

To capture the risk-aversion intuition, the standard approach in economics has been to utilize the model of expected utility, in which risk aversion derives from diminishing marginal utility for wealth (or diminishing marginal utility for aggregate consumption). The expected utility model for risk aversion has been used to derive many important insights. But over the years, economists and psychologists have identified various problematic issues with expected utility as a descriptive model of choice. In this article, we urge economists to take seriously the research agenda of developing and assessing different ways to model risk aversion. We proceed in three main steps. First, we highlight that the basic intuition of risk aversion that drives many results in economics is not intimately tied to expected utility. Second, we describe a few alternative models that can also capture the basic intuition of risk aversion. Finally, we discuss that, while expected utility and the alternative models might all capture the basic intuition of risk aversion, the alternative models can generate additional, more nuanced implications not shared with expected utility, that in some cases seem to be borne out by data. We emphasize that these alternative models also are not perfect, and further research is needed to identify even better approaches.

This paper performs an ex-post cost–benefit and distribution analysis of the Gothenburg congestion charges introduced in 2013, based on observed effects and an ex-post evaluated transport model. Although Gothenburg is a small city with congestion limited to the highway junctions, the congestion charge scheme is socially beneficial, generating a net surplus of €20 million per year. From a financial perspective, the investment cost was repaid in slightly more than a year and, from a social surplus perspective, is repaid in < 4 years. Still, the sums that are redistributed in Gothenburg are substantially larger than the net benefit. In the distribution analysis we develop an alternative welfare rule, where the utility is translated to money by dividing the utility by the average marginal utility of money, thereby avoiding putting a higher weight on high-income people. The alternative welfare rule shows larger re-distribution effects, because paying charges is more painful for low-income classes due to the higher marginal utility of money. Low-income citizens pay a larger share of their income because all income classes are highly car dependent in Gothenburg and workers in the highest income class have considerably higher access to company cars for private trips. No correlation was found between voting pattern and gains, losses or net gain.

This paper revisits the standard model of labor supply under two additional assumptions: consumption requires time and some limited amount of work is enjoyable. Whereas introducing each assumption without the other one does not produce novel insights, combining them together does if the wage rate is sufficiently high. For top earners, work has a positive marginal utility at the optimum and above a critical wage level it converts into a pure consumption good. Their labor supply curve is first backward bending and then vertical. This can justify an optimal marginal tax rate on top incomes equal to 100%%. Top earners in the vertical half-line of the labor supply curve optimally refrain from spending their entire income. At the macroeconomic level, this can generate a lack of effective demand. With some qualifications, these findings carry over to models that include savings and philanthropy.

Living standards indices based on asset ownership are increasingly being used to describe poverty in developing countries. Yet, less work has been done on constructing meaningful weights using economic theory. In this paper, I develop a novel, cardinal index by incorporating asset prices, which can be feasibly collected at low cost. I weight items based on marginal utilities, estimated using a structural model of household preferences. Using data from the Living Standards Measurement Surveys from Malawi (2004, 2010, 2013), Nicaragua (1998, 2001, 2005), and Bulgaria (1995, 1997, 2001), I find that the marginal utility weights are positively but not linearly increasing in price for most items. I compare weighting methods and find that weights, household rankings, and poverty profiles are sensitive to construction method, suggesting that a theory-based method offers some advantages over commonly used statistical methods. Finally, I discuss methodological issues of spatial aggregation, temporal variation, and quality differentiation.