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European countries offer a large amount of policies to protect the population against the risk of poverty and social exclusion but Young adults generally do not have access to unemployment benefits since their period of contribution is relatively short and in some countries they do not have access to minimum income. In times of high unemployment in Europe, is it possible for young people to access autonomy without family resources? This paper aims to compare the budgetary constraints of young adults to understand the various strategies implemented by different European countries. I rely on microsimulation and hypothetical data to compare identical individuals and to isolate the effect of different tax-benefit systems on the budget constraint of young adults. I find that European countries can be classified into five groups concerning the design of social assistance policies for young people. Belgium, Finland and Denmark, which consider young people as an independant household, while taking into account the situation of cohabitation, are on average more effective in reducing the intensity of youth poverty.

This study uses a Japanese nationwide sample and experimentally compares rebate and matching, both of which are schemes intended to lower the price of monetary donation. Standard economic theory predicts that the two schemes will have the same effect on individuals’ donation behavior when their donation price is equivalent. However, we conduct an incentivized economic experiment through the Internet on 2,300 Japanese residents, and find that matching, which lowers the donation price by adding a contribution from a third-party, increases individuals’ donation expenditures compared to rebate, which lowers it through a refund from a third-party. Specifically, the experimental result shows that the donation expenditure in a 50% rebate treatment drops by approximately ¥126 compared to the control, while in a 1:1 matching treatment with essentially the same price of donation as the 50% rebate, the expenditure conversely rises by approximately ¥56. This tendency is consistent with the results of previous experimental studies comparing the two schemes. We further empirically confirm that the superiority of 1:1 matching over 50% rebate is not conclusively influenced by the participants’ confusion or misunderstanding, or budget constraint lines’ difference between the two schemes. Although the Japanese government have previously enriched rebate’s content, the level of monetary donations by the Japanese people is still low on an international scale. Based on this study’s findings, we discuss the possibility that implementing matching into the society effectively encourages their donation behavior.

Post Keynesian Economics has shifted away and even renegade from Keynes' original research program, i.e., the Unemployment Equilibrium thesis, endogenous money and liquidity preference determination of interest rate in which money and uncertainty play a fundamental part. This paper attempts to bring back the Keynesian counter-revolution spirit into Post Keynesian Monetary Theory by introducing a Non-Compensatory Disequilibrium Framework (NCDF) that allows structural breaks in budget constraints that lead to a model where Walras’ Law does not hold.

Retiring baby boomers are increasing the demand for Social Security Administration (SSA) services at a time when budget constraints and retiring staff are limiting its capacity to deliver these services. In theory, investing in web-based tools that people can use to serve themselves could help SSA meet the projected increases in demand, even with fewer staff. But, despite investments in tools with significant labor-saving potential, such as online benefit application, usage of these tools has stalled since 2016. This study of online claiming is based on a survey of older individuals who either claimed their Old Age and Survivor (OASI) benefit in the past five years or intend to claim within the next five years. The survey covered: 1) how they submitted (or intend to submit) their benefit application; and 2) how they communicated (or intend to communicate) with SSA during the process.

Tax authority resource constraints result in aggressive tax positions often going unchallenged. This study uses statute of limitations lapses to examine the effect of unchallenged tax positions on corporate tax aggressiveness. We first document that unchallenged tax positions are more likely when a firm claims less aggressive tax positions, when the tax authority has fewer resources, and when a firm has a more extensive geographic footprint. In our main analyses, we find that firms become less tax aggressive in years subsequent to positions going unchallenged, consistent with firms anticipating heightened tax authority scrutiny after disclosing unchallenged tax positions in their financial statements. In supplemental analyses, we find Internal Revenue Service (IRS) downloads of firms’ financial statements increase after firms disclose unchallenged tax positions, but tax settlements do not increase. Our findings shed light on a previously unexplored facet of taxpayer-tax authority interactions and are important in light of the increased budget constraints faced by tax authorities worldwide.

We study the design of fee structures of variable annuities as a stochastic control problem, in which an insurer is allowed to choose the fee structure in any form, and seeks an optimal one to maximize her expected discounted net profit. We obtain a semi-explicit characterization result for the optimal fee structure which is of barrier type with a free boundary. The insurer's optimal strategy is to charge fees if and only if the account value of variable annuities hits the free boundary from below, which differs from the constant fee structure that is commonly used in the industry, and other state- and time-dependent fee structures that have been proposed in the literature.

The purpose of this paper is to provide a concise theoretical and mathematical foundation for the major parts of the debate in the recently discussed school of economics called Modern Monetary Theory (MMT), while maintaining the basics of the neoclassical microeconomic framework, such as utility maximization of consumers using budget constraints and utility functions, and equilibrium of demand and supply of goods under perfect competition with constant returns to scale technology. By a two-periods overlapping generations (OLG) model in which the economy grows by technological progress, we will show that: 1) We need a budget deficit to achieve full employment with constant price when the economy grows by technological progress. This budget deficit should not be offset by future surplus; 2) A budget deficit that exceeds the level necessary to maintain full employment in a growing economy with constant price will cause inflation. A stable budget deficit is required to prevent further inflation; 3) A budget deficit that is insufficient to maintain full employment will cause a recession with involuntary unemployment. A budget deficit larger than the one necessary and sufficient to maintain full employment without a recession can overcome a recession caused by insufficient budget deficit and restore full employment. The deficit created to overcome the recession should not be offset by subsequent surpluses, since full employment can then be maintained through constant budget deficits.

We show that when borrowers are privately informed about their creditworthiness and lenders have a soft budget constraint, efficient investment requires a limit on the fraction of a firm’s cash flows that can be pledged to outsiders. That is, pledgeability should neither be too low nor too high. An increase in pledgeability, or, more broadly, creditor rights, can either promote re-investment in zombie firms, which increases other firms’ cost of capital, or it can lead to inefficient under- investment, depending on the composition of equilibrium credit demand. Thus, greater pledgeability can reduce net social surplus, and even trigger a Pareto loss.

[enter AbsIn a recent paper Tunez (2016) has reviewed the validity of Walras’Law for a Monetary Exchange Economy using a Non-Compensatory Disequilibrium Framework (NCDF). This paper will apply the same theoretical Framework to a Monetary Productive Economy with Bonds to demonstrate that, conflicting with Maurer’s (2009) and Patinkin’s (1965) models, general excess supplies might exist, i.e., Keynes’ thesis of Unemployment Equilibrium is hence a valid theoretical possibility as Walras’ Law does not always hold. The paper will also examine the debate between the loanable funds vs liquidity preference theories using the NCDFtract Body]

We provide the first firm-level evidence of the relation between state ownership and debt structure. Using an international sample of newly privatized firms (NPFs) from 76 countries over the 1998–2017 period, we find that state ownership is associated with a more diversified debt structure. This evidence is more pronounced for higher levels of state control, and is robust to accounting for endogeneity, using alternative samples, and controlling for other owner types. Additional analysis shows that our main evidence is consistent with the soft budget constraint, political, and social views of state ownership. Our results have several policy implications for financial system stability and the efficient allocation of financial resources in the economy.

External reference points, such as outside options or budget constraints, are common in bidding environments. We experimentally investigate the impact of external reference points for bidding in first-price auctions with independent private values. We find that the presence of a reference point distorts bidding behaviour. There are “reference price effects” consistent with a preference for certainty and anchoring bias. To establish robustness, we conduct a second experiment that controls for bidders’ first-order beliefs. After controlling for beliefs, the reference price effect dominates. We observe that the imposition of a ceiling on the opponent’s maximum bid set at the upper bound of the risk-neutral Nash equilibrium support is strong enough to reverse the well-documented pattern of overbidding in first-price auctions and indeed to induce significant underbidding. The findings inform on the implications of auction formats that involve reference points, and specifically buy-it-now price options that are common in internet auction listings.

Analyzing differences in the quality of information-intensive goods may require information processing from consumers. Focusing on the differences between organic and conventional milk, we propose analyzing such markets using a tractable micro-founded discrete choice framework with Rational Inattention, non-homothetic preferences, and heterogeneous consumers. We predict theoretically and confirm empirically that consumers with higher efficiency of information processing (EIP) choose higher quality goods than those with lower EIP; however, this does not hold for poorer consumers for whom budget constraints are binding. Similarly, choosing higher quality increases with income, but the effect is weak without sufficiently high EIP.

We offer a theory of how the combination of budget constraints and insurance drives up prices. A natural context for our theory is the health care market, where drug prices can be very high. Our model predicts that monopoly prices for orphan drugs are inversely related to the prevalence up until a maximum price. This is supported by empirical evidence in the literature. As a result, prices of drugs sold by a monopoly treating rare serious diseases are doomed to go sky high.

This paper depicts an often neglected channel of transmission of monetary policy, namely international safety appetite, as an important source of production and risk-taking international monetary spillovers. The model features a local economy with exogenous financial frictions that lead firms to need both local and foreign financing to pay for their factors of production. Global and local risk-averse banks supply firms with risky loans while buying safe assets to governments to hedge themselves against equity shocks. Monetary policy shocks of a hegemon currency issuer affect returns obtained by banks for the risky loans they concede, altering these agents' risk pricing and balance sheet composition. Main results outline that global monetary policy tightening reduces the returns of risky global loans, inducing global banks to reduce risky loan creation, ultimately decreasing both production and consumption volatility internationally. Two more secondary results arise. First, local monetary authorities may counteract global monetary policy spillovers, but this will entail a trade-off between boosting production and reducing consumption volatility. Second, both global and local expansive monetary policy increase the demand for global safe assets, relaxing the budget constraint of monopolistic global safe asset issuers. Understanding the international safety appetite mechanism of transmission appears to be of critical importance as it may impact the effectiveness of monetary policy in open economies as well as its optimal design.

Although assortment optimization has been extensively studied in the literature, there is lack of studies on exploring the impact of advertising on the output of assortment planning. In this article, we fill this gap by considering a novel joint advertising budget strategy and assortment optimization problem, where the platforms must jointly decide (1) the optimal advertising effort allocated to each product and (2) an assortment of products displayed to consumers. We assume that the purchase behavior of a consumer is governed by the classic multinomial logit choice model, where each product is associated with a preference weight and the purchase probability of a product in an assortment is proportional to its preference weight. To capture the advertising effect in the context of assortment planning, we assume that one can increase the preference weight of a product through advertising that product, and the degree of improvement is decided by a response function in terms of the amount of advertising efforts allocated to that product. Given a budget constraint on advertising, our objective is to find a solution, which is composed of an advertising strategy and an assortment of products, to maximize the expected revenue. We analyze the structural properties of this problem and derive effective solutions under different settings. If there is no capacity constraint on the number of products displayed to consumers, we show that the revenue-ordered assortments still maintain optimality, and we leverage this result to derive an optimal solution. For the capacity constrained case, it is hard to solve the optimization problem directly, we overcome this challenge by proposing an efficient iterative scheme to find the optimal solution.

This study investigates the causal link between electrification and the adoption of modern (and cleaner) cooking fuels, more specifically Liquefied Petroleum Gas (LPG). In order to correct for the potential endogeneity in the placement of electrical infrastructure, we exploit an instrumental variable approach. Our instrument interacts state-level supply shifts in hydro-electric power availability with the initial level of electrification of each district. The results are consistent with a choice set expansion under a fixed budget constraint. We find that electrification leads to an increase in the probability of adoption of (free) biomass fuels and a decrease in the probability of adoption of (costly) modern cooking fuels. These results are statistically significant only for the poorest households in our sample, while they become statistically insignificant when we move to richer households. The same is true for the share of expenditure in a specific fuel. These results seem to indicate that electrification, by creating an additional strain on households’ finances, pushes them back on the energy ladder.

Public, private, and not-for-profit organizations find advanced technology and product development projects challenging to manage due to the time and budget pressures, and turn to their development partners and suppliers to address their development needs. We study how dynamic development contests with enriched rank-based incentives and carefully-tailored information design can help these organizations outsource their development projects at the minimum project lead time by stimulating competition among suppliers. We show that an organization can use dynamically adjusted flexible rewards to achieve the absolute minimum expected project lead time at a significantly lower cost than a fixed-reward policy. Importantly, our flexible-reward policy pays the absolute minimum expected reward (i.e., achieves the first best). We further study the case where the organization does not have sufficient budget to offer a reward that attains the absolute minimum expected lead time. We propose that in this case, the organization can dynamically increase the contest reward until its budget constraint binds and then use information sharing as a strategic tool to incentivize suppliers. Specifically, we propose an easy-to-implement random-update policy where the organization periodically monitors the status of suppliers at random times and immediately discloses any partial progress. We show that such a random-update policy outperforms other canonical information disclosure strategies. Our results indicate that dynamic rewards and strategic information disclosure are powerful tools to help organizations outsource their development needs swiftly and cost effectively.

Most developed countries will be facing severe public budget constraints. We derive a formula for how extraction or use of nonrenewable resources should be taxed when governments need to collect commodity tax revenues. Moreover, we show how it can be directly used to indicate how carbon taxation should be increased in the presence of public-revenue needs. The obtained tax is an augmented, dynamic version of the standard Ramsey taxation rule. It distorts developed reserves, which are reduced, and their depletion, which is slowed down, going further in the direction prescribed for the resolution of the climate externality. We present a simple calibrated application of our results to illustrate how the carbon taxation of oil should be augmented, and the incidence on oil use and tax revenues.

Japanese Abstract: 日本語要約： 本稿では、MMT派と（いわゆる）主流派の間における経済論議上の齟齬と一致について、大きく3つのカテゴリー（財政問題、金融システムと金融政策論、及び財政政策論）に分けて論じた。財政問題に関しては、通貨発行権と変動相場制を有する国での受動的な財政不履行の不在についてMMT派・主流派が相互に一致し得ることを確認した。その上で、「再定義された財政破綻」について双方の主張を吟味し、各々批判を加え、さらに止揚的な解として長期停滞モデルが有用なのではないかという示唆を行なった。財政「黒字」問題、及び政府部門赤字と民間部門赤字の非対称性についても、MMT派・主流派の両面から検討した。金融システム・金融政策論については、信用創造理解、及び内生的貨幣供給理論の点での両者の乖離を指摘しつつ、主流派側による整合論について、主に政策金利と総需要の間の関係の不確実性と不安定性の面から批判を加えた。そうした批判は、MMT派からだけでなく、最近の主流派内部の議論からも成り立つことを確認した。財政政策論については、まずクラウディング・アウトとマンデル・フレミング効果について論じ、MMT派的な金融財政理解をモデルに組み込む方向性としてIS-MPを検討することで、いずれの効果も自明ではない（成立しないことがありうる）ということを論じた。リカード=バローの中立問題、FTPL、政府債務の将来世代負担問題については、いずれも財政の持続可能性の状況についての前提によって議論が左右されることを確認した。最後に、財政の硬直化については、ミンスキーの系譜を引くMMT のカンザスシティ・アプローチにおける懸念と主流派の経済学/財政学の懸念が協調的であることを指摘した。 English Abstract: This paper discusses the difference and coincidence in economic debates between MMT and (so-called) mainstream economics in three major categories: fiscal collapse, financial system & monetary policy, and fiscal policy. Regarding fiscal collapse, I confirmed that MMT and mainstream economists can mutually agree on the absence of passive fiscal default in currency-issuing government and floating exchange rate systems. The paper then examines both sides' arguments for a "redefined fiscal collapse," criticizes each side's arguments, and suggests that the secular stagnation model may be useful as an integrated solution. The issue of "fiscal surplus" and the asymmetry between government and private sector deficits are also examined from both MMT and mainstream perspectives. With regard to the financial system & monetary policy, I pointed out the divergence between MMT and mainstream economics in terms of the understanding of money creation and the theory of endogenous money supply, and criticized the mainstream's "consistent" view between money multiplier and endogenous money mainly from the perspective of the uncertainty and instability of the relationship between the policy rate and aggregate demand. I confirmed that such criticism is not only from the MMT, but also from the recent internal debate within mainstream economics. Regarding fiscal policy argument, I first discussed crowding out and the Mandel-Fleming effect, and then argued that both effects are non-trivial (and may not hold) by examining IS-MP as a direction to incorporate the MMT's understanding of monetary and fiscal policy into the model. Regarding the Ricardo-Barro equivalence theorem, the FTPL, and the issue of the burden of government debt on future generations, I confirmed that the debates depend on assumptions about the state of fiscal sustainability. Finally, regarding fiscal rigidity, I pointed out that the concerns in the Kansas City Approach of MMT, which is of Minsky's lineage, and those of mainstream economics/public finance studies are coordinated.

We empirically assess the potential financial impact of future gene therapies on the US economy. After identifying 109 late-stage gene therapy clinical trials currently underway, we estimate the number of new and existing patients with corresponding diseases to be treated by these gene therapies, developing and applying novel mathematical models to estimate the increase in quality-adjusted life years for each approved gene therapy. We then simulate the launch prices and the expected spending for these therapies over a 15-year time horizon. Under conservative assumptions, the results of our simulation suggest that an expected total of 1.09 million patients will be treated by gene therapy from January 2020 to December 2034. The expected peak annual spending on these therapies is $25.3 billion, and the expected total spending from January 2020 to December 2034 is $306 billion. Assuming a linear pace of future gene therapy development fitted to past experience, our spending estimate increases by only 15.7% under conservative assumptions. As a proxy for the impact of expected spending on different public and private payers, we decompose the estimated annual spending by treated age group. Since experience suggests that insurers with annual budget constraints may restrict access to therapies with expected benefit to the patient, we consider various methods of payment to ensure access to these therapies even among those insured by the most budget-constrained payers. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

This paper explains how state governments could create new low-cost lifetime assurance funds to help provide retirement income security for millions of private-sector workers who currently lack pension coverage. Basically, an assurance fund operates like a mutual fund held within a defined contribution plan, but with the added features of mortality pooling and fully-funded lifetime payouts. As we envision them, assurance funds would be offered as annuity-like investment options on the new investment platforms being created by states like Oregon, California, and Maryland that offer their citizens the opportunity to participate in state-sponsored retirement savings plans. Adding an assurance fund could effectively turn these retirement savings plans into lifetime pensions. To ensure their sustainability, assurance funds would operate under a strict budget constraint and be organized as either tontines or pooled annuities.

The model in which an individual maximizes the ordinal or cardinal total utility subject to her budget constraint has long been the paradigm of individual choice theory in economics. The ordinal total utility theory has the advantage of utility immeasurability, but the disadvantage of being inconsistent with common sense such as the principle of diminishing marginal utility. The cardinal total utility theory is consistent with the aforementioned common sense, but suffers from the problem of utility measurability. This leads to a dilemma when one develops a utility-maximization model: she either needs to abandon common sense, or needs to postulate measurability for utility. This puzzling riddle, as of today, is still unsolved. The purpose of this paper is to present a new theory — the ordinal marginal utility theory — to solve this puzzle, and offers a complete formal axiomatic proof.

Most of the time the budget constraints in the socialist economies were harder than in developing countries and no less hard than in developed countries. The soft budget constraints (SBC) in socialist economies were not pervasive, as most authors believe, but selective, i.e. involved subsidization of some enterprises/industries at the expense of the other. This type of selective subsidization is a classic case of industrial policy: it may be good or bad, leading to success (China, Vietnam) or failure (USSR, Eastern Europe), but cannot be regarded as an intrinsic feature of the socialist centrally planned economy and an example of pervasive SBC. Pervasive SBC should be associated with permanent government budget deficit, debt accumulation, high inflation and other forms of macroeconomic populism. In the Soviet Union in the post-war period (after the monetary reform of 1947 and until the Gorbachev financial and monetary expansion that started in 1987) budget deficit and debt were very low, open and hidden inflation was less than several percent a year – a better record than in most Western countries. But in the 1990s in Russia, other former Soviet republics and most East European countries budget constraints were weakened dramatically and inflation increased to hundreds and thousands percent a year. SBC is just one type of this populist macroeconomic policy that was rare in socialist countries, but is found in abundance in many developing countries (especially Latin America and Sub-Sahara Africa) and transition economies (especially FSU states).

This study investigates whether subsidies to state-owned enterprises (SOEs) in China’s steel industry are distorting competitive neutrality. The Subsidy and Countervailing Measures Agreement of the World Trade Organization defines “specific” and “harmful” subsidies as being subject to discipline because they distort the allocation of resources. During a recession in the steel industry between 2008 to 2015, China produced excessively and exported aggressively at a lower price. This study hypothesizes that subsidies given by local governments to specific SOEs with undefined conditions softened the budget constraints of these SOEs and that the market equilibrium price would have been lower had no subsidy been provided. Using data from the financial statements of listed steel and iron firms and other relevant sources, I find that firms with operating deficits received subsidies that were large enough to compensate for their deficits. This preferential treatment of these specific SOEs induced them to engage in price cutting behavior, harming competitive neutrality in the market.

We consider the problem of allocating multiple units of an indivisible object among agents and collecting payments. Each agent can receive multiple units of the object, and his (consumption) bundle is a pair of the units he receives and his payment. An agent's preference over bundles may be non-quasi-linear, which accommodates income effects or soft budget constraints. We show that the generalized Vickrey rule is the only rule satisfying efficiency, strategy-proofness, individual rationality, and no subsidy for losers on rich domains with non-decreasing marginal valuations. We further show that if a domain is minimally rich and includes an arbitrary preference exhibiting both decreasing marginal valuations and a positive income effect, then no rule satisfies the same four properties. Our results suggest that in non-quasi-linear environments, the design of an efficient multi-unit auction mechanism is possible only when agents have non-decreasing marginal valuations.

The economics of happiness is an attractive and interesting way to provide broader concept of wealth. It is able to provide understanding on relative utility that does not just depend as intervene by individual choices within monetary budget constraint but also non-monetary factors. Therefore, this paper examines the determinants of happiness in Afghanistan and assesses the relationship between individual wealth and happiness. Data used for this study comes from primary data source by distributing 450 questionnaires to respondents in three provinces of Afghanistan, and logistic regression model has been applied to analyze the data to identify the relationship between happiness and wealth from both monetary and non-monetary variables. Based on the analysis, the variables such as age, education, health, asset, expenditure, marital status and sex are indicated as sources of happiness for Afghans whereas gender and marriage have negative impact on Afghans’ happiness. It is recommended to Afghanistan government to implement effective policies in education and health improvement so as to increase people’s happiness.

This paper analyzes bond convenience yields in a currency union. The intertemporal government budget constraint requires member countries' bond convenience yields and default spreads to adjust in response to shocks to their government surpluses. In the data, adjustments to convenience yields explain a larger fraction of the variation in Eurozone bond yields than default spreads. Higher convenience yields are correlated with stronger fiscal conditions both in the cross-section and in the time series. These findings imply large fiscal costs especially on the peripheral countries. If all Eurozone countries could have issued sovereign bonds at the same convenience yields as Germany, they would have raised an extra 281 billion euros in cumulative revenues from bond issuance between 2003 and 2020, representing 2.6% of 2020 Eurozone GDP.

Using the exogenous shock of the COVID-19 pandemic, we study how informed market participants evaluate fiscal space. Short-selling activity shifted upon the onset of the pandemic towards companies with low financial flexibility only in countries with limited fiscal space. Among these companies, short sellers targeted especially those that generate their revenue mainly in the domestic market. These short sellers entered their positions before the market crash, generating thereby a significant abnormal return. These findings support the notion that short sellers bet on the inability of governments with budgetary constraints to provide sufficient stimulus to their economy in times of crises.

We study a matching model with salaries in which firms face budget constraints. Due to budget constraints, the existence of a stable matching is not guaranteed. We show that if workers are homogeneous, from the firms' point of view, then a weak stable matching always exists; furthermore, when a strong stable matching does not exist, there is a nearby budget vector for firms such that a strong stable matching exists for the problem with perturbed budgets. On the flip side, if firms are homogeneous from the workers' point of view, a stable matching may not exist; however, one can reach a stable matching by changing the budget of firms where the total budget remains the same and each firm's budget change is bounded by the value of at most one worker to that firm.

This study investigates the causal link between electrification and the adoption of modern (and cleaner) cooking fuels, more specifically Liquefied Petroleum Gas (LPG). In order to correct for the potential endogeneity in the placement of electrical infrastructure, we exploit an instrumental variable approach. Our instrument interacts state-level supply shifts in hydroelectric power availability with the initial level of electrification of each district. The results are consistent with a choice set expansion under a fixed budget constraint. We find that electrification leads to an increase in the probability of adoption of (free) biomass fuels and a decrease in the probability of adoption of (costly) modern cooking fuels. These results are statistically significant only for the poorest households in our sample, while they become statistically insignificant when we move to richer households. The same is true for the share of expenditure in a specific fuel. These results seem to indicate that electrification, by creating an additional strain on households' finances, pushes them back on the energy ladder.

Advertisement, as a major revenue source of e-commerce platforms, is an important online marketing tool for sellers thereof. In this paper, we explore the dynamic ad allocation with limited slots upon each customer arrival for e-commerce platforms when the advertisers specify, for each ad, the budget constraint, the time periods when the ad should be displayed, and the click-through (lower-limit) constraint for certain customer segments. The goal of the platform is to maximize its payoff over the entire horizon. We propose a two-stage stochastic program framework in which the platform first decides the click-through goals for each ad/customer-type pair, and then devises the ad allocation policy to satisfy these goals in the second stage. We show that the optimal click-through goals can be achieved efficiently by solving a convex program, which can further reduce to a scalable linear program if the customer click-through behavior follows the multinomial logit model. Moreover, we provide a family of debt-weighted algorithms to achieve the optimal click-through goals, and prove that they are asymptotically optimal when the problem size scales to infinity. Compared to choice-based linear programming and its variant, our approach has better scalability and can deplete the ad budgets more smoothly throughout the horizon, which is very much desirable for the online advertising business in practice.

In this paper, we explore the effects of India’s federal structure on state-level fiscal responsibility. Drawing from a dataset that covers the period from 1991 to 2019, we argue that a low marginal retention rate, a high level of transfer dependence and a high level of borrowing dependence (soft budget constraints) from the central government facilitates lower levels of fiscal responsibility in intergovernmental relations. Our hypothesis is tested using random effects, and fixed effects panel estimations of regressions on fiscal responsibility outcomes across Indian states. We also account for the effects of the world’s largest employment program, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), on subnational fiscal responsibility. We find that the fulfillment of rural public employment measures is conducive to lower levels of fiscal responsibility. Moreover, we argue for the persistence of soft budget constraints as a key structural feature of Indian federalism.

Public investment in advanced economies is at historical lows, and shows a declining trend since at least the 1980s. Two main hypotheses have been posed to rationalize this fact. On the one hand, the “social dominance hypothesis” claims that this is related to structural factors, given the upward social expenditure trends related to ageing populations and social preferences, and the operation of the government budget constraint (limits to further increase significantly tax revenues and public debt, in a context of secular stagnation). On the other hand, another branch of the literature indicates that too-rigid fiscal rule frameworks cause fiscal retrenchment episodes to hinge heavily on public capital expenditure, which does not recover enough in the subsequent expansion, creating a sort of downward hysteresis behaviour in this budgetary item. In this paper we look jointly at both sets of duelling explanatory factors, and show that both are key to understanding public investment dynamics in advanced economies over the past decades.

Several states in the U.S. have piloted a type of subscription model for prescription drugs, under which a state pays a fixed amount to a pharmaceutical manufacturer for a targeted population (e.g., inmates) over a contract horizon. We analyze the implications of executing the subscription model by characterizing a healthcare provider’s drug-administering decisions, which entails delivering both services and products. In a public-health setting in which service delivery is commonly contracted out using a capitation system, the subscription model additionally contracts out product delivery, meaning drug-administering decisions are subject to a global budget cap. Thus, pressures to minimize costs can lead to the rationing of care despite the promise of unlimited drug supply. We characterize the provider’s cost-minimizing decisions and show increasing the capped amount does not change the propensity for rationing. To induce the provider away from a singular focus on cost minimization, we analyze a case in which the provider faces two objectives — maximizing cures and minimizing mortality — subject to a budget constraint. We develop a novel approach that determines the efficient frontier of this bi-objective problem in a polynomial time; our approach entails converting the bi-objective problem into a tri-objective problem, which is then decomposed into multiple subproblems. The efficient frontier captures trade-offs resulting from the provider’s actions. In addition, and importantly, we show the efficient frontier can be attained through a variety of performance-based incentive schemes.

In this short and hypothetical case study, we present a management problem of optimization. With the backdrop of COVID-19, we explore how Beta Company should optimize its cost for international medical journal exposure to ensure its brand’s credibility in an international pharmaceutical market. The supplementary section accompanies MS excel models with data. By playing this excel based optimization game; the players would be able to appreciate the use of Solver Add-in to simulate real-life linear programming problems. The users would learn about the application of sum of product excel function and finally get accustomed about media allocation models in marketing under budget constraints.

In our time automation, in combination with burgeoning fields such as Artificial Intelligence, has grown to be a significant factor, and with it the role of scientific and engineering knowledge in the working of firms has grown too. We present a model-based study of firms in which generation of new knowledge, and the application of accumulated knowledge are integral to business since these determine the range and scope of the firms' products, and also the efficiency of R&D and the production process. In our model the firm is organized as two functionally separate stages in series. Stage 1's activity is R&D which creates new concepts, methods and prototypes of products. Stage 2 deploys labor and capital, in the form of "machines'', in production, which transforms selected outputs of Stage 1 into marketable, profitable products. New knowledge is generated from dedicated research in Stage 1 as well as by Learning-by-Doing (LbD) in both stages. Knowledge is subject to obsolescence over time. The firm's investment policy determines the allocation of funds to each stage subject to a budget constraint, operations management controls the admission of the output of Stage 1 to Stage 2, and also the combination of labor and machines in Stage 2. We analyze the interaction of these decisions, and the dynamical evolution of the knowledge stock under two management strategies. The short-term-focused, myopic strategy takes the existing knowledge stock as given, and maximizes the immediate profit. The long-term-focused strategy takes into account the future benefits of generating new knowledge in the investment decision. We use commonly-used production functions to obtain nonlinear dynamical system models, which are analyzed. We show that for both strategies the system converges to a steady-state where the knowledge stock and investment allocation remain constant over time. In numerical studies we compare the system behavior for the two strategies, and characterize their dependencies on various factors, such as the strength of the LbD effect, return on knowledge stock, and the influence of knowledge in expanding the scope and range of the firm's products.

This paper uses a macroeconomic agent-based model building on Delli Gatti et al. (2011) to investigate the influence of agents’ expectations and consumption choices on government expenditure multipliers. Following a thorough investigation of the size of the multiplier in the pre-existing baseline model, a modification is introduced, allowing agents to engage in inter-temporal optimization of consumption subject to a budget constraint which is based on estimates of future income. Compared to the baseline, the fiscal multiplier is strongly affected by this alternative consumption behavior, becoming significantly smaller. In a further step, agents’ beliefs about the effects of government expenditure shocks are explicitly introduced. In the case of exogenously imposed beliefs coupled either with adaptation of individual beliefs or switching behavior between different types of beliefs, it is shown that both optimistic and pessimistic expectations can be temporarily self-fulfilling and either increase or decrease the value of the multiplier. Both forms of belief dynamics also allow for the incorporation of announcement effects of fiscal policy. In a final experiment, agents are allowed to engage in least-squares learning in order to gain an estimate of the effect of government expenditure shocks on future income. It is shown that under least squares learning, beliefs are ‘rational’ insofar as they lead to broadly correct predictions on average. The paper hence contributes to addressing aspects of the Lucas critique as applied to macro-ABMs, since agents react systematically (and reasonably) to announcements of changes in fiscal policy.

The aftermath of a rapid-onset disaster is the most crucial period, during which health and humanitarian organizations (HOs) must distribute critical relief items at quickest possible time. Yet, supply management is a significant challenge due to many unknowns such as time, place, type, and magnitude of disasters. Taking supply, demand, and budget uncertainty, we propose an inventory policy for a single-relief item, and extend it to multiple-relief items. We combine two common alternatives — {proactive} and {reactive} — and analyze policies that minimize expected costs under a budget constraint and budget uncertainty. Our analyses illustrate that: (i) finding an optimal level of pre-positioning inventory is more complex when the landed cost of pre-positioned item is less than purchasing relief item aftermath of a disaster; (ii) budget limitation is the underlying source of complexity to determine optimal inventory level; (iii) pre-disaster investment saves more compared to emergency funding, and (iv) the kitting of multiple relief items is not supported unless the criticality level, demand and supply characteristics of all items in the kit are homogeneous.

We introduce a prototype agent-based model of the macroeconomy, with budgetary constraints at its core. The model is related to a class of constraint satisfaction problems (CSPs), which has been thoroughly investigated in computer science. The CSP paradigm allows us to propose an alternative price-setting mechanism: given agents' preferences and budgets, what set of prices satisfies the maximum number of agents? Such an approach permits the coupling of production and output within the economy to the allowed level of debt in a simplified framework. Within our model, we identify three different regimes upon varying the amount of debt that each agent can accumulate before defaulting. In presence of a very loose constraint on debt, endogenous crises leading to waves of synchronized bankruptcies are present.In the opposite regime of very tight debt constraining, the bankruptcy rate is extremely high and the economy remains structure-less. In an intermediate regime, the economy is stable with very low bankruptcy rate and no aggregate-level crises. This third regime displays a rich phenomenology: the system spontaneously and dynamically self-organizes in a set of cheap and expensive goods (i.e. some kind of ``speciation''), with switches triggered by random fluctuations and feedback loops. Our analysis confirms the central role that debt levels play in the stability of the economy. More generally, our model shows that constraints at the individual scale can generate highly complex patterns at the aggregate level.

With the advancements of medical technology and the improvements in quality of life, the demand for innovative retirement products designed to address increasing longevity risks has been growing in recent decades. Tontines and tontine like products, where the insurers and policyholders share longevity risks, are being explored as an alternative to annuities. As of now, homogeneous policyholders are often assumed in the design process of this mortality-pooling product type. Inspired by the work of Milevsky and Salisbury [2016] in which heterogeneous cohorts are considered, we also extend the tontine products to heterogeneous policyholders. Different from the method employed in Milevsky and Salisbury [2016], we establish the explicit expression of optimal withdrawal rates under the actuarial fairness budget constraint held for one single cohort. In addition, we propose a numerical procedure to achieve approximate fairness among the cohorts by choosing participation rates (or the share prices) properly.

Modern Monetary Theory has lately received much attention but also a fair amount of criticisms. The intention of this paper is to review the main arguments in contention to assess the validity of the arguments put forward and the limitations of its policies. Modern Monetary Theory questions orthodox self-imposed ideological constraints that might unnecessarily bound the extent of government policies.

Escalation is a key characteristic of many consumption behaviors that has not received the theoretical attention it deserves. The aim of this paper is to propose both a definition and a theoretical treatment of escalation in consumption. We shall define escalation as the attempt to obtain “more” or engage in consumption acts that are “more intense” on a measurable quantitative or qualitative, objective or subjective, scale (more difficult ski slopes, stronger drugs, harder sex, better restaurants etc.), even if, previously, the subject preferred less intense consumption behaviors. Further, this evolution in preferences also occurs if the budget constraint does not change. We will find endogenous and exogenous theoretical microfoundations for escalation in models of hedonic adaptation, desire for novelty, acquisition of consumption skills, rising aspirations, positional effects, and envy. However, we will also discuss the possibility that the tendency to escalate is a specific innate behavior inherent to human nature. Finally, we will propose a preliminary theoretical formalization of such behavior and indicate the possible implications of taking escalation into adequate consideration.

This article investigates the impact of Medicaid expansion under the Affordable Care Act (ACA) on beverage choices by low-income households. A theoretical analysis indicates that Medicaid expansion could induce an income effect from relaxation of the budget constraint that could increase unhealthy beverage purchases, and a nutrition education effect that could decrease them. To empirically test these effects, we utilize household-level data of beverage purchases from 2013 to 2016 in 52 U.S. metropolitan areas in Medicaid expansion and non-expansion states. The start of ACA Medicaid expansion enrollment in 2014 by 31 states and household Medicaid eligibility were used as the identification strategy. Results from a triple-differences model with nearly one million observations on purchases of seven beverage categories indicate that Medicaid expansion resulted in eligible households buying more soda and fruit drinks and less bottled water. Results from a mixed-logit model with nearly 17 million purchase observations at the household-brand level indicate that Medicaid expansion led to overall increases in eligible households’ purchases of and valuation of sugary beverages and a decrease in their price elasticities of demand. Overall, the empirical results lend support to income effect hypothesis of Medicaid expansion but not to the nutrition education effect hypothesis. The unintended impacts found in these empirical results highlight the need to complement the benefits of Medicaid expansion with effective diet quality programs or investigate nudges to improve the healthfulness of low-income household beverage choices.

One proposed market-based approach to repurposing federal spectrum involves levying administratively-controlled fees that approximate the opportunity cost of spectrum on federal agencies. This article examines the theory and evidence that a system of spectrum use fees can promote an efficient reallocation of spectrum and finds that the spectrum fee approach has no intrinsic advantage over the existing command and control system. Under the system of Administered Incentive Pricing in the United Kingdom, calculating the opportunity cost of spectrum imposes a heavy burden on regulator Ofcom, but spectrum fees still give the wrong price signals, and in Ofcom’s own 2016 assessment, financial incentives of government departments to release or share spectrum have been weak or non-existent. With imperfect information, it is no easier for the regulator to specify correctly the right prices under the spectrum fee approach than the right quantities under the command and control system. As budget-funded non-profits, federal agencies have a soft budget constraint that weakens their responsiveness to prices and costs. In these respects, the spectrum fee model shares the information and incentive problems of the classical and reform versions of socialist economic systems. The practice of charging federal agencies market-based rental rates for office space in federally owned or leased buildings does not validate the spectrum fee proposal given that federal property is managed in a top-down fashion. The overlay approach to repurposing federal spectrum has an intrinsic advantage over the spectrum fee model because auctioning flexible-use overlay licenses generates market-based pricing information about the value of federal spectrum.

In this paper, we consider a dynamic set-up for designing optimal reinsurance contracts. The main objective is to maximise the lifetime dividends of an insurance company. We study three problems. First, we consider a general dividend maximisation problem with just budget constraints; second, we add solvency conditions to the previous problem; and finally, we consider a problem with solvency constraints and a particular type of dividend functions. We show that the optimal solutions of the first and second problems do not evolve over time and can be found by solving a static problem, whereas the third problem's optimal solution evolves over time and depends on the problem specification and the state variables. We find the dual problem of the third problem and show that the optimal reinsurance contract always has a multilayer structure. Last, we consider some examples and show that in many cases, the contract is indeed a two-layer policy.

Federal and state budgetary constraints continually challenge Medicaid. The effects of benefit cuts are common: long waiting lists for community-based services, skeletonized drug formularies with unstable access to long-term prescriptions, no psychiatric therapy for people immobilized by depression, and no more than fourteen days of acute hospitalization. Reimbursements may be so low that providers cannot hire qualified staff and must reduce services, close facilities, or refuse to take Medicaid altogether. Misguided efficiency policies may afflict some groups of patients as well. Decisions to narrow access rights to publicly funded health care promote the perception that more broadly inclusive programs would be unwisely and unfairly generous. They also risk characterizing disability rights as "special," confined to a narrow class of people who charitably ought not to be expected to provide for themselves. In contrast, on a philosophical view we have been exploring-one that addresses problems of justice under circumstances of injustice by pursuing rather than reducing inclusion-efforts like these are unjust.

Taxes that happen concurrently with the purchase are more salient than deferred taxes. Using a sharp geographical discontinuity between London Boroughs, we show that the incidence of property taxes deferred to the future is too small compared to the incidence of stamp duty taxes happening at the moment of buying the property. The difference in incidence implies very large discount rates that cannot be easily rationalized even after accounting for liquidity constraints. The lack of salience at the moment of purchase implies that the burden of the tax will be borne in the future to meet the budget constraint. This implies that there is an optimal tax mix, even though one of the two taxes is more distortionary than the other.

We design a non-clairvoyant dynamic mechanism under budget and ex-post individual rationality constraints that is dynamic incentive-compatible and achieves non-trivial revenue performance, even without any knowledge about the future. In particular, our dynamic mechanism obtains a constant approximation to the optimal dynamic mechanism having access to all information in advance. To the best of our knowledge, this is the first dynamic mechanism that achieves a constant approximation and strictly respects dynamic incentive-compatibility and budget constraints without relying on any forecasts of the future. Our dynamic mechanism is enabled by a general design framework for dynamic mechanisms under complex environments, coined Lossless History Compression (LHC) mechanisms. LHC mechanisms compress the history into a state carrying the least historical information without losing any generality in terms of either revenue or welfare. In particular, the characterization works for i) almost arbitrary constraints on the outcomes, ii) private type distributions that are publicly correlated, and iii) any objective function defined on the historical reports, allocations, and the cumulative payments. We further prove that a non-clairvoyant dynamic mechanism is dynamic incentive-compatible if and only if it is equivalent to a stage-wise incentive compatible and state-utility independent mechanism, in which the latter means that the buyer's expected utility at each stage is independent of the state.

Junk-food taxes have mixed effects on obesity and junk-food consumption. We build a theoretical model to explain empirical results and better understand how to address the obesity crisis. In our framework, hand-to-mouth consumers make an intertemporal choice between junk-food consumption and weight loss. Their choice depends on calorie consciousness, which is influenced by perceived after-tax relative prices and educational attainment. Thus, a junk-food tax modifies consumers’ intertemporal choice both through their budget constraint and calorie consciousness. As a result, the effect of the tax on body weight reflects competing income, intertemporal substitution, and calorie-consciousness effects. The model explains empirical observations such as the recent rise in obesity and differences in weight outcomes for different income levels. The model explains circumstances under which junk-food taxes can be effective or ineffective to reduce body weight as well as differences in elasticities of high-calorie food consumption for high- and low-income earners.

We introduce a simple – yet novel – queuing system composed of particle inputs, receptors, and response outputs. The system is a natural extension of the occupancy problem in probability theory. A possible interpretation of the model is to have the response output be the utility an individual obtains from input consumption, subject to the biological processing constraints. We derive the response function of the system, and show it can be closely approximated by a discounted utility model with a satiation state. Next, we show that the there is an upper bound to the utility rate the individual can experience in stationary conditions. Finally, we derive the temporal distribution of inputs to maximizes the total response under a budget constraint.