Katherine Cuff

Optimality of workfare with heterogeneous preferences

With the standard non-linear income taxation framework with heterogeneity of preferences, in this paper the optimality of workfare as a screening tool is examined. It is assumed that workfare does not serve as a human capital investment, participation is mandatory, and administrative costs are negligible. Imposing alternative cardinalizations on individuals utilities allows for the possibility that the government optimally redistributes income to or from high disutility of labour individuals. Under either case, it is never optimal to impose workfare on these individuals. It is also shown that non-productive workfare can be an efficient policy tool, in contrast to the results found in Besley and Coate (1995), Brett (1998), and Beaudry and Blackorby (1997).

Optimal Income Taxation with Quasi-linear Preferences Revisited

With quasi-linear in leisure preferences, closed-form solutions for the marginal tax rates and the marginal utility of consumption under utilitarian and maxi-min objectives depend only on the skill distribution. Bunching induced by binding second-order incentive conditions also depends only on the distribution, but does not affect solutions in the non-bunched range. These are affected if bunching is caused by binding non-negative income constraints. Specific skill distributions are considered and it shown that the pattern of marginal tax rates depend critically on whether or not the skill distribution is truncated at the upper end.

Equalization and the Decentralization of Revenue–Raising in a Federation

We study federal economies in which regional governments have responsibility for delivering public services and redistributive objectives apply. The implications of these for the assignment of revenue-raising instruments and fiscal transfers, both vertical and horizontal, are considered. Models of heterogenous regions of varying degrees of complexity and generality are constructed. For each case, we determine what fiscal instruments must be given to the regions and what inter-governmental transfers must be made in order that the social optimum is achieved. With heterogenous households and regions, the social optimum can be decentralized by making regions responsible for redistribution and implementing equalization transfers that depend on the number of households of each type.

Monitoring Job Search as an Instrument For Targeting Transfers

Redistribution programs are constrained because those not working may be either unable to work, voluntarily unemployed or involuntarily unemployed. The inability to distinguish among these three cases inhibits the targeting of transfers to those most in need. Enabling the government to monitor whether unemployed individuals are searching for work and accepting any offered jobs increases its ability to redistribute income. We show that these monitoring activities are complementary, and consider how a minimum wage might be a useful adjunct to monitoring contingent tax-transfer policies.

Willingness-to-Pay for Parallel Private Health Insurance: Evidence from a Laboratory Experiment

Debate over the effects of public versus private health care finance persists in both academic and policy circles. This paper presents the results of a revealed preference laboratory experiment that tests how characteristics of the public health system affect a subjects willingness-to-pay (WTP) for parallel private health insurance. Consistent with the theoretical predictions of Cuff et al. (2010), subjects’ average WTP is lower and the size of the private insurance sector smaller when the public system allocates health care based on need rather than randomly and when the probability of receiving health care from the public system is high. (Les debats continuent quant aux effets compares du financement prive et public des soins de santea la fois dans le monde academique et le monde des definisseurs de politiques. Ce memoire presente les resultats d’une experience de laboratoire destinee a reveler les preferences et a montrer comment des caracteristiques du systeme public de soins de sante affectent la volonte de payer pour des services paralleles d’assurance sante privee. En ligne avec les predictions theoriques de Cuff et al. (2010), la volonte moyenne de payer est plus faible et la taille du secteur de l’assurance privee plus petite quand le regime public est fonde sur les besoins plutot qu’aleatoire, et quand la probabilite de recevoir les soins du regime public est elevee.)

Dominant Strategy Implementation with a Convex Product Space of Valuations

A necessary and sufficient condition for dominant strategy implementability when preferences are quasilinear is that, for every individual i and every choice of the types of the other individuals, all k-cycles in i’s allocation graph have nonnegative length for every integer k ≥ 2. Saks and Yu (Proceedings of the 6th ACM conference on electronic commerce (EC’05), pp 286–293, 2005) have shown that when the number of outcomes is finite and i’s valuation type space is convex, nonnegativity of the length of all 2-cycles is sufficient for the nonnegativity of the length of all k-cycles. In this article, it is shown that if each individual’s valuation type space is a full-dimensional convex product space and a mild domain regularity condition is satisfied, then (i) the nonnegativity of all 2-cycles implies that all k-cycles have zero length and (ii) all 2-cycles having zero length is necessary and sufficient for dominant strategy implementability.

Judgments regarding the fair division of goods: the impact of verbal versus quantitative descriptions of alternative divisions

This article uses a stated-preference survey to investigate the impact on judgments regarding the fair division of a fixed supply of a good of differing types of information by which to describe five distributional principles. The three types of information are quantitative information only (the predominant approach in existing studies), verbal information only, and both quantitative and verbal information. The five distributional principles are equal division among recipients, Rawlsian maximin, total benefit maximization (TBM), equal benefit (EB) for recipients, and allocation according to relative need (RN) among recipients. We find important informational effects on judgments of the fair division of each of two health-related goods (pain-relief pills and apples consumed to obtain an essential vitamin): judgments based on quantitative information only are consistent with previous research; changing to verbal descriptions causes a notable shift in support among principles, and in particular greater support for the principle of TBM; judgments based on both quantitative and verbal information match more closely those made with only quantitative information. The pattern of judgments is consistent with the hypothesis that subjects do not fully understand the relationship between the conceptual meaning of the principles (as described verbally) and their implied quantitative divisions. We also find evidence of modest differential judgments across goods (pills vs. apples), sample effects (university vs. community), and sex effects, and little support for a non-zero allocation principle.

Willingness-To-Pay for Parallel Private Health Insurance: Evidence from a Laboratory Experiment (Volonté De Payer Pour Des Services Parallèles D’Assurance Santé: Résultats D’Une Expérience De Laboratoire)

Debate over the effects of public versus private health care finance persists in both academic and policy circles. This paper presents the results of a revealed preference laboratory experiment that tests how characteristics of the public health system affect a subjects willingness-to-pay (WTP) for parallel private health insurance. Consistent with the theoretical predictions of Cuff et al. (2010), subjects’ average WTP is lower and the size of the private insurance sector smaller when the public system allocates health care based on need rather than randomly and when the probability of receiving health care from the public system is high. (Les debats continuent quant aux effets compares du financement prive et public des soins de santea la fois dans le monde academique et le monde des definisseurs de politiques. Ce memoire presente les resultats d’une experience de laboratoire destinee a reveler les preferences et a montrer comment des caracteristiques du systeme public de soins de sante affectent la volonte de payer pour des services paralleles d’assurance sante privee. En ligne avec les predictions theoriques de Cuff et al. (2010), la volonte moyenne de payer est plus faible et la taille du secteur de l’assurance privee plus petite quand le regime public est fonde sur les besoins plutot qu’aleatoire, et quand la probabilite de recevoir les soins du regime public est elevee.)

Tenancy Default, Excess Demand and the Rental Market

We develop a model of a competitive rental housing market with an endogenous rate of tenancy default arising from income uncertainty. Potential tenants must choose to engage in a costly search for rental housing, and must commit to a rental agreement before the uncertainty is resolved. We show that there are two possible equilibria in this market: a market-clearing equilibrium and an equilibrium with excess demand. Therefore, individuals might not have access to rental housing because they are unable to afford to look for housing, they are unable to pay their rent, or with excess demand in the market they are simply unable to find a rental unit. We show that government regulations affecting the cost of default to the housing suppliers and the quality of rental units can have different effects on the equilibrium variables of interest — rental rate, quantity demanded and supplied, and access to rental housing — depending on the type of equilibria in the market. A numerical example illustrates these results.

A Behavioral Economic Study of Tax Rate Selection by the Median Voter: Can the Tax Rate Be Influenced by the Name of the Publicly Provided Private Good?

This paper presents the results of a behavioral economics study to test if the tax rates submitted to finance the public provision of a private good are influenced by changing the name of the private good. A revealed-preference laboratory decision-making experiment is used to test if participants choose significantly different tax rates to support provision of a private good named as a health care investment compared to an identical good named as a neutral monetary investment. Although some previous studies focusing on both framing and context effects find differences associated with health versus non-health environments, these studies have not involved voting over public provision of a private good. In our experimental environment, participants with different income endowments provide their preferred proportional tax rates for financing public provision of a private good in either a neutral or a health context. The implemented tax rate is the median preferred tax rate, and once the budget is determined, each participant receives the same quantity of the publicly provided private good. In each context, the payoff functions are the same. The only difference between the contexts is the name attached to the publicly provided private good, regardless of the name attached to the publicly provided private good, consuming it imposes no externalities. This controls for the positive externality characteristics of many health care goods, but not for preferences evoked by the merit good character of health care which factor into decisions about the public provision of health care. We find that the theoretical predictions of the median voter model are generally supported by the data. However, the conjecture that the implemented tax rate would be affected by context is not supported by the results.