Uriel Spiegel

The Case of a "Giffen Good"

A specific utility function is presented along with a numerical example to show a positive sloped demand curve for a Giffen good.

Casinos, Crime, and Real Estate Values: Do They Relate?:

This study analyzes the effect of a new large export-based industry on crime in its region, and in turn on property values. Urban economic models suggest that, ceteris paribus, land values diminish with distance from a central place which “produces” employment, income and other amenities. The new industry has the negative byproduct of crime, which is hypothesized to have a reversed, although systematic effect, on land values. Thus, theoretically, the net effect of (dis)amenities as a function of distance from the central city is ambiguous. Applying the model to casinos in Atlantic City shows that the frequency of violent crimes, burglaries, and robberies diminish with distance and appear to have a depressing effect on property values especially in localities accessible to the central city. The negative effect of crime diminishes with distance. The effect on property values appears to be significantly higher in the postcasino relative to the precasino era. However, the positive effects of the central city on real estate values diminish with distance. Thus development and crime affect property values inversely as a function of distance. The discounted value of the cost of crime resulting from casinos, as reflected in unrealized assessed real estate valuation, appears to be on average 24 million dollars per square mile in the 12 accessible localities, and 11.2 million dollars per square mile in the 52 less accessible localities.

Crime and income inequality: An economic approach

ConclusionWhen a given pie is redivided in a less equalitarian manner, it is uncertain whether those already undertaking illegal activity will increase or decrease their activities, since the return to illegal activities is countered by the loss due to punishment (which is more painful to a criminal who failed) on one hand, and from the cost of the sacrifice of utility from legitimate activities on the other hand.If the absolute level of wealth remains constant but relative position declines, an incentive is generated to re-establish a persons standing by joining the crime industry. This is certainly the case at the margin for those close to the boundary of joining, i.e., those who are almost indifferent between joining or remaining within the legal framework.Assuming an individual is already participating in illegal activities, the effect of either an absolute or relative change in his level of wealth on his level of illegal activities is indeterminate. This applies both to the case where the total wealth of the society is fixed and the share of the pie going to the rich rises and the case where the total pie rose but the entire gain went only to the rich.In summary, it has been shown that an increase in wealth inequality has an indeterminate outcome both with respect to the decision of the poor on whether or not to enter the crime “industry” and with respect to the decision of those already participating in illegal pursuits to increase or decrease their level of activity. This conclusion is somewhat contrary to the general consensus of the literature, which appears to hold that increases in wealth inequality will tend to increase both the level of participation in the crime industry and the level of output within the industry.

Simulation study of the price differentiation effect in a stochastic deteriorating inventory with heterogeneous consumers -- freshness sensitivity

A fixed price policy regardless of expiration date may result in unsold inventory and sales loss. Price reduction over time as the expiration date approaches motivates customers to purchase all items, including the ones that are left with only a short interval until their expiration. We conduct a discrete event simulation that captures the main characteristics of this phenomenon. Results show that a moderate differentiation of price increases profits by 6%, a larger differentiation reduces profits. Profits are the highest for freshness-oriented customers. A fixed price policy is preferred in an environment of large variance and expected near term expirations.

Optimal policies for inventory usage, production and pricing of fashion goods over a selling season

A short selling season and highly uncertain demands prior to the season characterize production and selling of fashion goods. Once the season starts and demands turn up with a peak interest in the beginning, monopoly becomes under tremendous pressure to produce the required amount so as not to disappoint its customers. It motivates the monopoly to prepare significant inventories by the opening day. Unfortunately, even the most advanced techniques for demand forecasting are likely to induce either an overestimate or underestimate of the initial inventories. Both affect the monopolys profit. Overestimation results in surplus, which may never be sold, and excessive inventory holding costs. Underestimation implies sales as well as customer loyalty losses. Given inventory level at the beginning of the selling season, we derive policies of handling this inventory, production capacity and product prices in order to maximize the profit and thus diminish the effect of inherent inaccuracy of initial inventory estimation of fashion goods. A case of bookstore management illustrates the effectiveness of the suggested strategies.

A Non-Singular Peaked Laffer Curve: Debunking the Traditional Laffer Curve

This paper has two purposes: first, to demonstrate a utility function of consumption and leisure that leads to a backward-bending supply of labor. The second purpose is to show that in spite of the fact that a Laffer curve of any individual in a society may have one-peak point where tax revenue is at its maximum, the aggregate (macro) Laffer curve is very likely to have multi (or at least dual) peaks. This is caused by the high degree of inequality in wage distribution in most western countries.

Natural inequality, production and economic growth

Abstract This paper explains why the effect of income inequality on productivity and growth is ambiguous. When income distribution exhibits inequality levels that are compatible with accepted criteria, productivity and growth ensue. When the divergence from an acceptable level of inequality occurs, then under certain conditions, we may expect lower (higher) production levels and lower (higher) levels of economic growth.

The effects of rumours on financial market efficiency

During the last decade the world has faced a tremendous development of information technology and telecommunication. This study investigates the impact of rumours (released on the web) on common stock returns. The findings indicate that the market responds positively to rumours. During the event day and the five preceding days, the abnormal stock return is positive and statistically significant. In particular, the impact is stronger for single than for multi-rumours, for initial rather than subsequent rumours and for realized rumours than for nonrealized rumours.

The Optimal Face Value of a Discount Coupon

The paper analyses the decision made by firms to issue one-time coupons as a means of attracting new deal prone customers. Given the structure of the market and the share of loyal customers, we derive boundaries for the value of the coupon, as well as the optimal face value of the coupon. The main variables that determine the coupon value are: the size of deal-prone and loyal market segments, the initial profit margin and the coupons processing cost. We show that the optimal share of discount out of the profit margin per customer should never exceed the customer share of the deal-prone segment.

The Natural Rate of Crime by Type of Community

With the pathbreaking works of Becker and Lewis on population [1974] and Becker on the family [1974] and crime [1968], it appeared that economics was on the threshold of a period of scholastic hegemony. In the intervening years, that dream has not been realized. At least in the case of the crime literature, that failure is due in large part to the failure of economic theory to fit the observable facts. In the original papers by Becker [1968] and Ehrlich [1971], criminal behavior was modeled as a problem in time allocation in which the decision to commit crime was essentially equivalent to the purchase of a lottery ticket. In the empirical literature based on these models, there was a leap of faith imputing a monotone increasing relationship between the time allocated to illegal behavior and the incidence of crime. Several recent papers have corrected these mistakes. In Sagi and Weinblatt [1982] and Buck et. al. [1984], criminal behavior is modeled as being rational, but the criminal plans a number of crimes with the knowledge that the probability of successfully perpetrating n crimes is greater than that for a string of n + 1 successful crimes. While the qualitative results of the model do not differ greatly from Becker, the quantitative outcome demonstrates some improvement. Nevertheless, a common failure of the literature on the economics of crime is the inability to accept the deterrence hypothesis. More often than not, in spite of increasingly elaborate Becker-type models, increas? ingly sophisticated econometric techniques, and increasingly detailed data sets, there appears to be a positive relationship between enforce? ment and the incidence of crime; that increased enforcement does not deter criminals is a common conclusion in the empirical literature.1 [See