Skip to main content

Michael Baye

In the previous chapters, we have explored how the presence of income taxation may alter several of the neoclassical properties of consumer demand functions and labor supply functions. As of yet, however, we have not discussed how one may... more
In the previous chapters, we have explored how the presence of income taxation may alter several of the neoclassical properties of consumer demand functions and labor supply functions. As of yet, however, we have not discussed how one may empirically estimate the demand and supply functions when consumers face nonlinear budget sets While the literature is now quite extensive, the interested reader may find the recent work of Hausman (1985) a most useful review of the labor supply literature.
We now consider the implications of allowing taxes to be a function of the income earned by individuals. If the government wishes to, redistribute income by its tax policy, government may decide to use a nonlinear tax, taxing wealthy... more
We now consider the implications of allowing taxes to be a function of the income earned by individuals. If the government wishes to, redistribute income by its tax policy, government may decide to use a nonlinear tax, taxing wealthy individuals more than poorer individual s. This leads to the question; how should government define how wealthy an individual is? Perhaps ideally government could base the income tax on the individual’s full income, F. This would allow government to base taxes on the market spending potential of each individual, and to construct a tax bill that really redistributes utility.
Throughout this monograph we have focused on behavioral and index concepts that view government services and the tax system as fixed. In practice, the consumer may receive benefits from taxes (eg., public goods), and the government may... more
Throughout this monograph we have focused on behavioral and index concepts that view government services and the tax system as fixed. In practice, the consumer may receive benefits from taxes (eg., public goods), and the government may from time to time change the tax code. This chapter provides a brief look at these issues, and shows how earlier results may be extended to deal with the issues. We consider first the issue of government goods, and then the issue of tax code changes. Finally, some preliminary results concerning the indexation of tax codes are presented.
As a means of introducing the concept of an income-based measure of the cost of living, it is useful to note that in the absence of taxes, the expenditure function and the full income compensation function correspond. That is,... more
As a means of introducing the concept of an income-based measure of the cost of living, it is useful to note that in the absence of taxes, the expenditure function and the full income compensation function correspond. That is, \({\text{e}}\left( {{\text{P, u}}} \right) \equiv \mu \left( {{\text{P, u; T}}} \right)\) where e(•) in the expenditure function defined in Chapter Three, and μ(•) is the income-compensation function defined in Chapter Four.
In Chapter Seven we examined the construction of an income based cost of living index in the presence of an income tax, but where the consumer’s income was solely exogenous. This chapter considers the concept of income based cost of... more
In Chapter Seven we examined the construction of an income based cost of living index in the presence of an income tax, but where the consumer’s income was solely exogenous. This chapter considers the concept of income based cost of living indices when the consumer’s income depends upon an endogenously determined labor supply. Recall that \({\text{P}} = \left( {{\text{P}}_0 ,\bar P} \right)\)) and \(X = ({X_0},\bar X)\)).
In order to solidify important concepts, we shall first present some index concepts in the absence of an income tax. The key to constructing an expenditure-based cost of living index is the expenditure function examined in Chapter Three,... more
In order to solidify important concepts, we shall first present some index concepts in the absence of an income tax. The key to constructing an expenditure-based cost of living index is the expenditure function examined in Chapter Three, namely \({\text{e}}\left( {{\text{P,u}}} \right) \equiv \frac{{\min }}{{\text{X}}}\left\{ {{\text{P}} \bullet {\text{X}}\left| {{\text{U}}\left( {\text{X}} \right) \geqslant {\text{u}}} \right.} \right\}\). This function defines the minimum expenditures on goods and leisure necessary to purchase the standard of living corresponding to u.
We show that the total cost of production index and the marginal cost of production index may be used to illuminate the course of an industry's evolution. Each of these summary statistics conveys different bits of... more
We show that the total cost of production index and the marginal cost of production index may be used to illuminate the course of an industry's evolution. Each of these summary statistics conveys different bits of information about the industry. Theoretical properties of the indices are compared, and then the indices are applied to data from the steel industry to
... I.7. Baye and DA Black, On the Theory qf~zncome-based cost-of-living indiees 87 leisure. Assuming that P and vary over tune, we differentiate eq. (4) with respect to time to obtain - F where dots over .-ariables denote their time... more
... I.7. Baye and DA Black, On the Theory qf~zncome-based cost-of-living indiees 87 leisure. Assuming that P and vary over tune, we differentiate eq. (4) with respect to time to obtain - F where dots over .-ariables denote their time derivatives. ...
Abstract This note extends recent work on cost of living index numbers for a population of individuals who face imperfect and costly information about prices. It is known that individuals with identical preferences but different incomes... more
Abstract This note extends recent work on cost of living index numbers for a population of individuals who face imperfect and costly information about prices. It is known that individuals with identical preferences but different incomes will require different cost of living adjustments unless preferences are homothetic. However, this result in based on a model of consumer behavior under costless information. We analyze differences in the cost of living among searchers with different incomes, and show that even if preferences are homothetic, expected cost of living indices will generally vary across searchers with different references standards of living. The reason for the differences is that, under homothetic preferences, reservation prices are a decreasing function of the searcher's standard of living.
... Substituting e(p, w, u) and t, into eq. (1) yields y+y(p, y, u)8=e(p, la (p, y, u), u). (4) Differentiating eq. (4) with respect to time and applying Shephard's Lemma we have n .Y+A(sh) Lr pixh, i=1 where the dots' denote... more
... Substituting e(p, w, u) and t, into eq. (1) yields y+y(p, y, u)8=e(p, la (p, y, u), u). (4) Differentiating eq. (4) with respect to time and applying Shephard's Lemma we have n .Y+A(sh) Lr pixh, i=1 where the dots' denote the time derivatives. ...
... This paper examines the implications of stochastic discount factors for Nash equilibria in repeatedgames. ... Our results are also relevant for finitely repeated games where the probability that thegame ends (owing to bankruptcy, say)... more
... This paper examines the implications of stochastic discount factors for Nash equilibria in repeatedgames. ... Our results are also relevant for finitely repeated games where the probability that thegame ends (owing to bankruptcy, say) varies stochastically over time. ...
... We concur with Lin and Kmenta (1982) that 'I.. .economic researchers [should] pay more attention to ridge regression than has so far been the case." (p. 494). ... PRINCIPAL COMPONENT REGRESSION have u 2 2 2... more
... We concur with Lin and Kmenta (1982) that 'I.. .economic researchers [should] pay more attention to ridge regression than has so far been the case." (p. 494). ... PRINCIPAL COMPONENT REGRESSION have u 2 2 2 kjc > - - - - a >O. max a. That is, k* is bounded away from zero. ...
This paper derives the cost-of-living index of an individual who faces imperfect and costly information about prices. Traditional cost-of-living in dexes assume that the consumer passively accepts prices as given. The authors derive a... more
This paper derives the cost-of-living index of an individual who faces imperfect and costly information about prices. Traditional cost-of-living in dexes assume that the consumer passively accepts prices as given. The authors derive a multiprice search model in which the consumer choos es the search strategy that minimizes the expected cost of buying a g iven level of utility. In
We examine the equilibrium interaction between a market for price information (controlled by a gatekeeper) and the homogenous product market it serves. The gatekeeper charges fees to firms that advertise prices on its Internet site and to... more
We examine the equilibrium interaction between a market for price information (controlled by a gatekeeper) and the homogenous product market it serves. The gatekeeper charges fees to firms that advertise prices on its Internet site and to consumers who access the list of ...
... If a firm subscribes to a "victory at all costs" philosophy, then the firm may devote effort to disabling or subverting its rival. This moves us from Dixit's contest to Jack Hirsh-leifer's (1988) world of conflict,... more
... If a firm subscribes to a "victory at all costs" philosophy, then the firm may devote effort to disabling or subverting its rival. This moves us from Dixit's contest to Jack Hirsh-leifer's (1988) world of conflict, where con-tenders seek to cripple or destroy oppo-nents, perhaps even ...
We study a model where retailers endogenously engage in both promo- tional advertising to attract loyal customers as well as informational advertising, which consists of deciding whether and what price to list on a price comparison site.... more
We study a model where retailers endogenously engage in both promo- tional advertising to attract loyal customers as well as informational advertising, which consists of deciding whether and what price to list on a price comparison site. We derive a symmetric subgame perfect equilibrium of the model and study the limiting properties of equilibrium prices, promotion, and listing de- cisions as the number of competitors grow large. In equilibrium, firms choose positive promotion levels, thereby creating loyal customers, but competition in this dimension ultimately reduces firm and industry profits. We show that prices do not converge, regardless of the number of competing e-retailers. As a consequence, the model predicts persistent price dispersion online regardless of the number of competing firms. Finally, we show that this price dispersion persists even when it is prohibitively costly for firms to create loyal customers. A key testable prediction of our analysis is that the observe...
Research Interests:
... 82 MR Baye, A. Gillette, and CG de Vries Most models solve the problem of existence of equilibrium in asset markets characterized by asymmetric information by assuming the Wal-rasian price contains some exogenous noise (cf. Grossman... more
... 82 MR Baye, A. Gillette, and CG de Vries Most models solve the problem of existence of equilibrium in asset markets characterized by asymmetric information by assuming the Wal-rasian price contains some exogenous noise (cf. Grossman and Stiglitz, 1980; Kyle 1985). ...
Summary  The paper demonstrates that in an environment of free banking where some agents have imperfect information regarding the circulation and debasement rates of alternative money suppliers, the equilibrium supply of money involves... more
Summary  The paper demonstrates that in an environment of free banking where some agents have imperfect information regarding the circulation and debasement rates of alternative money suppliers, the equilibrium supply of money involves mixed strategies. It follows that the circulation and debasement rates are intrinsically stochastic, but that their averages are below the rates set by a monopoly bank. Empirical tests
A rationale for including advertising in complete demand systems is presented. An advertising analogue of the Slutsky equation is derived, and properties of the expenditure and indirect utility functions characterized. Empirical estimates... more
A rationale for including advertising in complete demand systems is presented. An advertising analogue of the Slutsky equation is derived, and properties of the expenditure and indirect utility functions characterized. Empirical estimates of a complete demand system incorporating dynamic advertising effects support neoclassical restrictions; we do not reject homogeneity, or symmetry at the 1% level. This represents surprisingly strong support
Abstract. Tullock's analysis of rent seeking and overdissipation is reconsidered. We show that, while equilibrium strategies do not permit overdissipation in expectation, for particular realizations of players' mixed strategies... more
Abstract. Tullock's analysis of rent seeking and overdissipation is reconsidered. We show that, while equilibrium strategies do not permit overdissipation in expectation, for particular realizations of players' mixed strategies the total amount spent competing for rents can exceed the ...
This paper characterizes pure-strategy and dominant-strategy Nash equilibrium in noncooperative games that may have discontinuous and/or non-quasi-concave payoffs. Conditions called diagonal transfer quasi-concavity and uniform transfer... more
This paper characterizes pure-strategy and dominant-strategy Nash equilibrium in noncooperative games that may have discontinuous and/or non-quasi-concave payoffs. Conditions called diagonal transfer quasi-concavity and uniform transfer quasi-concavity are shown to be necessary and, with conditions called diagonal transfer continuity and transfer upper semicontinuity, sufficient for the existence of pure-strategy and dominant-strategy Nash equilibrium, respectively. The results are used to examine
... Please update your bookmarks. 2006 NYU Summer Workshop on the Economics of Information Technology. Yi Zhang () and Julia Mills () Additional contact information Yi Zhang: UCLA. Economics Bulletin, 2006, vol. 28, issue 19, pages A0.... more
... Please update your bookmarks. 2006 NYU Summer Workshop on the Economics of Information Technology. Yi Zhang () and Julia Mills () Additional contact information Yi Zhang: UCLA. Economics Bulletin, 2006, vol. 28, issue 19, pages A0. Date: 2006. ...
Research Interests:
In this section we examine income-based measures of the cost of living in the absence of an income tax. Recall that, from the budget constraint in the absence of an income tax, \({\text{y + P}}_{\text{0}} \delta = P \cdot X\), so that... more
In this section we examine income-based measures of the cost of living in the absence of an income tax. Recall that, from the budget constraint in the absence of an income tax, \({\text{y + P}}_{\text{0}} \delta = P \cdot X\), so that \({\text{y}} = {\text{P}} \bullet {\text{X}} - {{\text{P}}_0}\delta\).
eScholarship provides open access, scholarly publishing services to the University of California and delivers a dynamic research platform to scholars worldwide.
documents, data, and support. Thanks also go to seminar participants at the FTC,
When firms are able to recognize their previous customers, they may be able to use their information about the consumers ’ past purchases to offer different prices and/or products to consumers with different purchase histories. This... more
When firms are able to recognize their previous customers, they may be able to use their information about the consumers ’ past purchases to offer different prices and/or products to consumers with different purchase histories. This article surveys the literature on this “behavior-based price discrimination.”

And 48 more

We exploit a unique dataset from a price comparison site to estimate the determinants of clicks received by online retailers. We find that a firm enjoys a 60% jump in its clicks when it offers the lowest price at the site and failure to... more
We exploit a unique dataset from a price comparison site to estimate the determinants of clicks received by online retailers. We find that a firm enjoys a 60% jump in its clicks when it offers the lowest price at the site and failure to account for discontinuities distorts parameter estimates by nearly 100%.
This discontinuity is consistent with a variety of models that have been used to rationalize online price dispersion. Finally, we show that one may use estimates of the determinants of a firm’s clicks to obtain bounds on its underlying demand parameters, including standard elasticities of demand.
Research Interests: