Welfare and Public Policy Flashcards
Chetty (2015)
Adding behavioural parameters to models can give new policy tools and suggestions Optimal mix of nudges and tax rates set by policy planner….s.t. “IC” constraints and distinguishing between decision and experienced utility
Chetty, Looney and Kroft (2009)
Individuals under-react to tax changes that aren’t salient. More powerful on the label that at the till “Hawthorne effect” in US Beer data 1970-2003….not due to awareness as 87% were aware of the taxes.
- Impact of tax salience –> Standard model, tax + price = final price so they are largely the same price = tax
- eg. Shipping cost putting people off online purchases
- Develop formulas for incidence and efficiency costs of taxation
- Empirics + Model
Strategies:
- Manipulate tax salience –> Allows back out degree to which agents under react to tax
- Manipulate tax rate –> measure two elasticities required for above, take the ratio
- Quasi experiment with DiD, short term intervention –> control group is other products (same store), other stores (same products), other times (same products and store) –> “Triple Diffs”
Setup:
- 30% of products subject to tax, with average rate of 7.375% in the city
- Agreed trial for small number of products
- Select high price products so tax is more visible amount, also high elasticitiy to get TE
- UPC scanner data
- Price tickets: “left digit bias”
Results:
- Flatter response to sales tax, very little response –> Behaviour differs whether tax is included in the price already
- Inattentive consumers puts less pressure on producers to reduce pre-tax price
- Tax imposed on producers hurts them more than non-salent taxes imposed on consumes –> Not tax neutral
Harsanyi (1997)
Basic desires are common, differ in our preferences
Kahneman (1994)
Fallible memory + False Evaluation = Erroneous Choice
Frank (2005)
Growth at the top is like a trickling reference adjustment, Positional vs. Non-Positional expenditure - Excessive expenditure on positional
Roles of Social Comparison:
- Subjective Perception: direct impact of social reference value
- Social Functioning: wealth friends brings wealthy habits
- Info and Motivation: hope and aspiration….positive externality?
Thaler & Sunstein (2003, 2008)
Preserve the freedom of choice but nudge people to promote welfare through favourable outcomes “Libertarian Paternalism” Types of Nudge: i. Information ii. Context Framing iii. Defaults Physical layout of queues and products in a store, contextual framing nudge
Layard (2006)
Social Comparison acts as a negative externality, Corrective Tax could decrease work effort for the benefit of all
Hoxby & Turner (2014)
Informational nudges, college applications
Halpern (2015)
Salience of information as a nudge
Fryer et. al (2012)
Framing wages of teachers or bonuses as a loss not a gain
Barrere-Osorio et. al (2011)
Payment timing as a contextual nudge, welfare payments
Lump sum or smaller, frequent dtreams of benefits to mitigate present bias and impatience?
Chetty et. al (2014)
Defaults in retirement savings as a nudge - many stop contributing to pension after Danish government reduced tax deduction as a saving incentive
Madrian & Shea (2001)
Opt-in vs, opt-out schemes - 20% increase in participation
Reversed:
Adding behavioural parameters to models can give new policy tools and suggestions Optimal mix of nudges and tax rates set by policy planner….s.t. “IC” constraints and distinguishing between decision and experienced utility
Chetty (2015)
Reversed:
Basic desires are common, differ in our preferences
Harsanyi (1997)
Reversed:
Fallible memory + False Evaluation = Erroneous Choice
Kahneman (1994)
Reversed:
Growth at the top is like a trickling reference adjustment, Positional vs. Non-Positional expenditure - Excessive expenditure on positional
Roles of Social Comparison:
- Subjective Perception: direct impact of social reference value
- Social Functioning: wealth friends brings wealthy habits
- Info and Motivation: hope and aspiration….positive externality?
Frank (2005)
Reversed:
Preserve the freedom of choice but nudge people to promote welfare through favourable outcomes “Libertarian Paternalism” Types of Nudge: i. Information ii. Context Framing iii. Defaults Physical layout of queues and products in a store, contextual framing nudge
Thaler & Sunstein (2003, 2008)
Reversed:
Social Comparison acts as a negative externality, Corrective Tax could decrease work effort for the benefit of all
Layard (2006)
Reversed:
Informational nudges, college applications
Hoxby & Turner (2014)
Reversed:
Salience of information as a nudge
Halpern (2015)
Reversed:
Framing wages of teachers or bonuses as a loss not a gain
Fryer et. al (2012)
Reversed:
Payment timing as a contextual nudge, welfare payments
Lump sum or smaller, frequent dtreams of benefits to mitigate present bias and impatience?
Barrere-Osorio et. al (2011)
Reversed:
Defaults in retirement savings as a nudge - many stop contributing to pension after Danish government reduced tax deduction as a saving incentive
Chetty et. al (2014)
Reversed:
Opt-in vs, opt-out schemes - 20% increase in participation
Madrian & Shea (2001)
E -
A -
S -
T -
E - Easy
A - Attract
S - Social
T - Timely
M -
I -
N -
D -
S -
P -
A -
C -
E -
M - Messenger
I - Incentives
N - Norms
D - Defaults
S - Salience
P - Priming
A - Affect
C - Commitments
E - Ego
Sugden (2004) [AER]
Short run preferences like present bias cannot be discarded in welfare analysis.
- Libertarian argument, free choice is valuable per se. –> Responsible person
Fudenberg and Levine (2006, 2012)
Dual self style model
- Long run self is a planner, discount delta.
- Many short run selves living for only one period - “doers”.
- LR can only set incentives for SR selves as they choose actions
- LR agrees with each SR self, predictions similar to hyperbolic discounting
Masatlioglu and Raymond (2015)
Stochastic reference point in a model of ref dependent utility.
- Recent expectations are ref. point
- Piece wise liner beliefs with loss aversion parameter
- Should we consider gain loss utility in calculating welfare? Endowment effect
- Probably Yes –> People truly suffer losses, not a mistake
- Should we take pessimism into account when calculating welfare? Rank dependent utility, most negative belief
- Probably No –> This is a mistake, ex-post probabilities don’t matter
- Similar feeling models generate very different decision making!*
- Very different feeling models get the same decision making, yet different welfare conclusions.*
Bernheim and Rangel (2009)
Theory delivers bounds on welfare purely based on choice data.
- Ancillary condition included, affects behaviour but does not impact experienced utility. eg. framing, salience, default options
- Study choice functions in new environment: Choice set + Ancillary
- Inconsistent if ancillary changes preferences
Compensating variation: measure impact of restricting choice set, lower and upper bounds computed over all ancillary conditions
- Apply refinements –> discard some ancillary conditions eg. Currie (2011) - some people more sensitive to fear
- Fewer ancillaries give tighter bounds on welfare…but now we need a positive theory on refinements
[Reversed]
Individuals under-react to tax changes that aren’t salient. More powerful on the label that at the till “Hawthorne effect” in US Beer data 1970-2003….not due to awareness as 87% were aware of the taxes.
- Impact of tax salience –> Standard model, tax + price = final price so they are largely the same price = tax
- eg. Shipping cost putting people off online purchases
- Develop formulas for incidence and efficiency costs of taxation
- Empirics + Model
Strategies:
- Manipulate tax salience –> Allows back out degree to which agents under react to tax
- Manipulate tax rate –> measure two elasticities required for above, take the ratio
- Quasi experiment with DiD, short term intervention –> control group is other products (same store), other stores (same products), other times (same products and store) –> “Triple Diffs”
Setup:
- 30% of products subject to tax, with average rate of 7.375% in the city
- Agreed trial for small number of products
- Select high price products so tax is more visible amount, also high elasticitiy to get TE
- UPC scanner data
- Price tickets: “left digit bias”
Results:
- Flatter response to sales tax, very little response –> Behaviour differs whether tax is included in the price already
- Inattentive consumers puts less pressure on producers to reduce pre-tax price
- Tax imposed on producers hurts them more than non-salent taxes imposed on consumes –> Not tax neutral
Chetty, Looney and Kroft (2009)
[Reversed]
Short run preferences like present bias cannot be discarded in welfare analysis.
- Libertarian argument, free choice is valuable per se. –> Responsible person
Sugden (2004) [AER]
[Reversed]
Dual self style model
- Long run self is a planner, discount delta.
- Many short run selves living for only one period - “doers”.
- LR can only set incentives for SR selves as they choose actions
- LR agrees with each SR self, predictions similar to hyperbolic discounting
Fudenberg and Levine (2006, 2012)
[Reversed]
Stochastic reference point in a model of ref dependent utility.
- Recent expectations are ref. point
- Piece wise liner beliefs with loss aversion parameter
- Should we consider gain loss utility in calculating welfare? Endowment effect
- Probably Yes –> People truly suffer losses, not a mistake
- Should we take pessimism into account when calculating welfare? Rank dependent utility, most negative belief
- Probably No –> This is a mistake, ex-post probabilities don’t matter
- Similar feeling models generate very different decision making!*
- Very different feeling models get the same decision making, yet different welfare conclusions.*
Masatlioglu and Raymond (2015)
[Reversed]
Theory delivers bounds on welfare purely based on choice data.
- Ancillary condition included, affects behaviour but does not impact experienced utility. eg. framing, salience, default options
- Study choice functions in new environment: Choice set + Ancillary
- Inconsistent if ancillary changes preferences
Compensating variation: measure impact of restricting choice set, lower and upper bounds computed over all ancillary conditions
- Apply refinements –> discard some ancillary conditions eg. Currie (2011) - some people more sensitive to fear
- Fewer ancillaries give tighter bounds on welfare…but now we need a positive theory on refinements
Bernheim and Rangel (2009)
Gruber and Mullainathan (2006)
Propose to measure impact of tobacco taxes: taxes make predicted smokers happier
- Paying for commitment?
Deaton (2008); Easterlin (1974); Lindqvist, Ostling and Cesarini (2020)
Happiness studies
- Paradox
- Measurement issues
- Persistent effect of lottery patterns on happiness –> Very little effect if anything, quite precise on overall and financial impacts but beyond that not much.
- Low power
Sunstein (2014); Thaler and Sunstein (2003)
Nudge and libertarian paternalism.
- Guide biased people without changing opportunity sets
- Salience impacts consideration sets
- Social comparisons matter for true costs of action
(Bollinger et al (2011); Chaloupka et al. (2014); Butera et. al (2020); Ashraf et al (2006); Karlan et al (2016)
Non price intervernetions = nudges
- Information salience via food labels
- Graphic cigarette pack warnings
- Behaviour visibility enhancements
- Commitment devices
- Reminders
Allcott and Kessler (2019)
Welfare analysis of peer comparison nudges.
- Social comparison imposes a moral cost
- Elicit WTP for 4 more reports, which can be negative
Results:
- Heterogeneity vs mail / phone
- Most value reports, but many people would rather not get more reports
Matters for welfare aggregation!
[Reversed]
Propose to measure impact of tobacco taxes: taxes make predicted smokers happier
- Paying for commitment?
Gruber and Mullainathan (2006)
[Reversed]
Happiness studies
- Paradox
- Measurement issues
- Persistent effect of lottery patterns on happiness –> Very little effect if anything, quite precise on overall and financial impacts but beyond that not much.
- Low power
Deaton (2008); Easterlin (1974); Lindqvist, Ostling and Cesarini (2020)
[Reversed]
Nudge and libertarian paternalism.
- Guide biased people without changing opportunity sets
- Salience impacts consideration sets
- Social comparisons matter for true costs of action
Sunstein (2014); Thaler and Sunstein (2003)
[Reversed]
Non price intervernetions = nudges
- Information salience via food labels
- Graphic cigarette pack warnings
- Behaviour visibility enhancements
- Commitment devices
- Reminders
(Bollinger et al (2011); Chaloupka et al. (2014); Butera et. al (2020); Ashraf et al (2006); Karlan et al (2016)
[Reversed]
Welfare analysis of peer comparison nudges.
- Social comparison imposes a moral cost
- Elicit WTP for 4 more reports, which can be negative
Results:
- Heterogeneity vs mail / phone
- Most value reports, but many people would rather not get more reports
Matters for welfare aggregation!
Allcott and Kessler (2019)
