Iltae Kim

Comparative Statics Predictions for Changes in Uncertainty in the Portfolio and Savings Problems

The paper investigates comparative statics effects of changes in uncertainty for a general family of problems that encompasses both the portfolio and saving decisions. Conditions are derived on preferences that are necessary and sufficient for unambiguous comparative statics predictions. The paper consolidates and completes the statement of restrictions on attitudes toward risk-bearing needed for determinate predictions in the portfolio and saving problems. Copyright 2001 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Self-Selection and Optimal Nonlinear Effluent Charges

This paper proposes an optimal nonlinear effluent-charge system forenvironmental pollution control. This system achieves the first-bestoptimum through a self-selecting mechanism under asymmetric information.The proposed system can also control the level of revenues so as to reducethe excess burden of environmental taxation, and discriminate among thepolluters. The paper also compares this system with the conventional lineareffluent-charge system and discusses some economic implications ofimplementing the system.

Optimal Taxation with Deferred Compensation

The traditional theory of optimal taxation assumes that wage and interest incomes are received and taxed at different times. For example, Atkinson and Sandmo [2] and King [9] derived formulae for optimal wage and interest tax rates in the standard two-period life-cycle model in which a representative consumer/taxpayer receives wage income in the first (working) period and saves out of this post-tax wage income. The net return from saving accrues and is taxed as interest income in the second (retirement) period. In practice, however, a substantial portion of present wage and salary compensation is paid in the form of (expected) future pension benefits and is therefore tax-deferred. Table I presents data on total civilian wages and salaries and various tax-deferred pension contributions taken from individual income tax returns for 1988 in the United States. These data show that approximately 12 percent of wage income is comprised of tax-deferred pension contributions. In this paper we derive rules for optimal taxation in an alternative two-period setting in which not only interest income but also a part of wage income is deferred. As in the standard model, we assume that interest income accrues in the second period because investors bear temporal risk, so that the return to saving is received only after the resolution of uncertainty about the productivity of capital. However, we assume that incentive contracting in the form of deferred compensation is required to deal with moral hazard and adverse selection in the labor market. For example, Lazear [10] argued that deferred compensation can mitigate the moral hazard problem arising from costly monitoring of the effort and productivity of workers. Salop and Salop [17] showed that pension-type arrangements may act as a sorting device which reduces adverse selection costs when there is asymmetric information about worker productivity.1 These imperfections dictate

Comparison between optimal output tax and ad valorem tax for a polluting oligopolist under demand uncertainty

This article examines the results of an optimal output tax and an optimal ad valorem tax for a polluting oligopolist under demand uncertainty and then compares them with conventional results under an assumption of certainty. We show that, for general representations of uncertainty, the optimal tax under uncertainty is less than that under certainty. Finally, we discuss some findings regarding tax rates and tax revenues and investigate the regulatory feasibility of implementing the optimal solutions.

The Effects of Uncertainty on the Voluntary Private Provision of Impure Public Goods

This paper examines the effects of uncertainty on an individuals own contribution to the provision of the collective good using an impure public good model. Two types of uncertainty analyzing free-riding behavior are evaluated: (i) uncertainty surrounding the contributions of others to the public characteristic and (ii) uncertainty surrounding the response of others to an individuals own contribution. We extend previous studies by examining both the compensated and uncompensated effects of increases in such risks on the provision of the collective good. We also establish the conditions that are sufficient to determine both compensated and the total, uncompensated effects of an increase in risk on the voluntary provision of the collective good.

EMPLOYMENT RISK AND THE SUBSTITUTION BETWEEN SAVING AND UNEMPLOYMENT INSURANCE

This paper re-examines the comparative statics effects of increases in both the lump-sum and proportional components of an unemployment-insurance benefit on saving and labor supply. We analyze a two-period model of labor supply and saving that incorporates a known probability of being unemployed in the future. We show that, given risk aversion and the normality of leisure, the effects of increases in the lump-sum component on saving and labor supply are both negative. In the case of an increase in the replacement ratio, the relationship between unemployment insurance and saving depends on the weighted degree of absolute risk aversion, given risk aversion and the normality of leisure.

Comparative Statics for a Decision Model with Two Choice Variables and Two Random Variables: A Mean-Standard Deviation Approach

The decision model with two choice variables and two random variables, an extension of Feder, or Just and Pope, is examined here. Under the mean-standard deviation framework we derive the comparative statics results concerning the effects of a change in the mean, variance and covariance of the random parameters. Some restrictions on the random variables and on the decision model are considered for unambiguous comparative statics predictions. Copyright 2001 by Blackwell Publishers Ltd and The Victoria University of Manchester

Comparative statics predictions for the cross-effects of central dominance changes in risk with quasilinear payoffs

Abstract We examine cross-effects for central dominance changes in the random payoff to one activity on the willingness of a risk averter to undertake or expand a second. This willingness is enhanced for quasilinear payoffs when activities are cost substitutes.