Dennis Epple

Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products

In choosing the level of quality to purchase, the buyer of a differentiated product also chooses a point on the marginal price schedule for that product. Hence, in general, the demand functions for product characteristics cannot be consistently estimated by ordinary least squares. Market equilibrium results in a matching of characteristics of demanders and suppliers. This matching restricts the use of buyer and seller characteristics as instruments when estimating demand and supply functions for product characteristics. The paper develops these issues. A stochastic structure for hedonic equilibrium models is then proposed, identification results are presented, and estimation procedures are outlined.

Mobility and Redistribution

The ability of individuals to move freely from one jurisdiction to another is generally seen as a constraint on the amount of redistribution that each jurisdiction within a system of governments can undertake. In this paper, we look at this proposition by developing a positive analysis of income redistribution by local governments in a federal system. We ask how much redistribution occurs when only local governments can have tax/transfer instruments, individuals can move freely among jurisdictions, and voters in each jurisdiction are fully aware of the migration effects of redistributive policies. Local redistribution is shown to induce sorting of the population, with the poorest households located in the communities that provide the most redistribution. While the threat of out-migration affects the potential for redistribution, our results suggest that significant local redistribution is nonetheless feasible. Numerical computations indicate that the proportion of residents who are renters is a major factor affecting the local choice of level of redistribution.

Public Provision of Private Goods

Government may provide a good that can, if legally permitted, be supplemented by private purchases. Policy is determined by majority rule. Under standard assumptions on preferences, a majority voting equilibrium exists. A regime of positive government provision with no restriction on private supplements is shown to be majority preferred to a regime of either only market provision or only government provision. Combined public and private expenditure on the good is higher under this dual-provision regime than under either of the alternatives. Under some preference configurations, the median-income voter is pivotal; under others, a voter with income below the median is pivotal.

Ends against the middle: Determining public service provision when there are private alternatives

Abstract Public provision of a service coexists with private market provision. The quality of public provision is determined by majority vote. Preferences are not single peaked owing to the presence of private alternatives. We identify two cases. In one, majority voting equilibrium always exists and the median-income voter is pivotal. In the other, a necessary condition for equilibrium indentifies the pivotal voter who must have income below the median. When equilibrium exists, a coalition of middle-income households who consume the public alternative will be opposed by a coalition of rich and poor households, with the rich choosing private consumption.

Equilibrium among local jurisdictions: toward an integrated treatment of voting and residential choice

Abstract In models of local public goods with mobile consumers, existence of equilibrium is problematic. Difficulties with existence of equilibrium that arise in models with discrete locations and in models with voting are compounded when both features are introduced into the same model. We present conditions under which equilibrium exists in a model where freely mobile households choose community of residence and amount of housing consumption, and vote on the level of public goods provision. These conditions involve restrictions on preferences and the technology of public goods supply. At least some of these conditions appear consistent with empirical observations. We discuss the implications of the conditions, and their role in assuring existence of equilibrium. A series of computational examples provide illustrations of the way these conditions interact, and the difficulties that must be confronted if they are to be relaxed.

An Empirical Investigation of the Microstructure of Knowledge Acquisition and Transfer Through Learning by Doing

Does knowledge acquired through learning by doing on one shift transfer to a second shift when it is introduced at a manufacturing plant? The answer to this question has important theoretical implications about where knowledge is embedded in organizations and about sources of productivity growth. The answer also has important practical implications for managers planning to introduce additional facilities. This paper analyzes the amount of transfer across shifts at a manufacturing facility. Specifically, we analyze the amount of knowledge that is carried forward when the plant makes the transition from one to two shifts. We also investigate whether the rate of knowledge acquisition differs by shift, and we estimate the amount of transfer that occurs across shifts once both are in operation. In addition, we study transfer over time by analyzing whether knowledge acquired through learning by doing is cumulative and persists through time or whether it depreciates.

Interjurisdictional Sorting and Majority Rule: An Empirical Analysis

The goal of this paper is to provide a comprehensive empirical analysis of majority rule and Tiebout sorting within a system of local jurisdictions. The idea behind the estimation procedure is to investigate whether observed levels of public expenditures satisfy necessary conditions implied by majority rule in a general equilibrium model of residential choice. The estimator controls for observed and unobserved heterogeneity among households, observed and unobserved characteristics of communities, and the potential endogeneity of prices and expenditures, as well as the self-selection of households into communities of their choice. We estimate the structural parameters of the model using data from the Boston Metropolitan Area. The empirical findings reject myopic voting models. More sophisticated voting models based on utility-taking provide a potential explanation of the main empirical regularities.

Competition between Private and Public Schools: Testing Stratification and Pricing Predictions

When there are peer effects in education, private schools have an incentive to vary tuition to attract relatively able students. Epple and Romano (1998) develop a general equilibrium model characterizing equilibrium pricing and student selection into schools when peer effects are present. The model predicts that competition will lead private schools to give tuition discounts to more able students, and that this will give rise to an equilibrium exhibiting stratification by income and ability between the public and private sectors and to a hierarchy of schools within the private sector. The model also yields a variety of comparative-static predictions. The predictions of the model are tested in this paper using a unique data set assembled by Figlio and Stone (1999). Tests of equilibrium predictions of the model reveal that: The propensity to attend private school increases with both income and ability, and, among private schools, the propensity to attend the highest-tuition school rises with both income and ability. Within private schools, tuition declines with student ability, with a substantial of even high-income households paying little or no tuition. The correlation between income and ability is greater in public than private schools. Tests of comparative static predictions of the model reveal that: Both income and ability become stronger predictors of private school attendance as public school expenditure falls. Income becomes increasingly important in determining placement in the private school hierarchy as public school expenditure falls. Discounts to ability in the lowest-quality private school decline as public school expenditure rises while discounts to ability in the highest-quality private school are little affected by changes in public school expenditure. Expenditure in private schools rises as expenditure in public school increases. These empirical results are consistent with the predictions of the theoretical model.

Existence of voting and housing equilibrium in a system of communities with property taxes

Abstract Considerable attention has recently been devoted to general equilibrium analysis of local public good allocation in a system of jurisdictions. While there are differences in approach and emphasis, all the models with a substantial degree of generality essentially ignore political processes for allocating local public goods. It is fairly clear from these models, however, that - at least for the time being - explicit modeling of the political process will require imposing more structure on the economics of the model. The framework of this paper forgoes the generality of the ‘apolitical’ models in order to be able to consider both economic and political aspects of the problem. We develop a formal model of a continuum of non-identical individuals, in which each individual must choose among a finite number of communities. In each community, the provision of the public good is financed by taxing residents on the amount of housing they choose to consume. The tax rate and amount of public good supplied in the community are determined by a vote of residents of the community. An equilibrium is said to exist whenever individuals are located in communities such that each community is populated and it is in an ‘internal equilibrium’, and no individual would become better off by migrating to a different community. Standard restrictions on individual preferences are not sufficient to guarantee the existence of an equilibrium with an arbitrary number of communities. In order to ensure existence, fairly severe assumptions must be placed upon individual preferences and technology. We develop these restrictions, and prove existence of equilibrium.

Ability tracking, school competition, and the distribution of educational benefits

Abstract To study the effects of ability grouping on school competition, we develop a theoretical and computational model of tracking in public and private schools. We examine tracking’s consequences for the allocation of students of differing abilities and income within and between public and private schools. Private schools tend to attract the most able and wealthiest students, and rarely track in equilibrium. Public sector schools can maximize attendance by tracking students. Public schools retain a greater proportion of higher-ability students by tracking, but lose more wealthy, lower-ability students to the private sector. Consequently, socioeconomic status is a predictor of track assignment in public schools. For the entire population, public-sector tracking has small aggregate effects on achievement and welfare, but results in significant redistribution from lower- to higher-ability students.