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We show that preference-homogeneity and loss-aversion are necessary and sufficient for the value function to have the power form with identical powers for gains and losses and for the probability weighting functions for gains and losses to be identical.
Persistent link: https://www.econbiz.de/10005307629
Loewenstein and Prelec (1992) explain the 'magnitude effect' and the 'sign effect', respectively, by using increasing elasticity of the value function and a higher elasticity for losses as compared to gains. We provide a value function with these two properties.
Persistent link: https://www.econbiz.de/10008474032
With nondistortionary user charges, the first best and second best of a single-club-exogenous-income economy with identical individuals coincide. They differ if incomes differ. Overprovision of a superior club good then occurs in the Second Best.
Persistent link: https://www.econbiz.de/10010580446