In determining the optimal redistribution of a given population's income, we ask which factor is more important: the social planner's aversion to inequality, embedded in an isoelastic social welfare function indexed by a parameter alpha, or the individuals' concern at having a low relative...

This paper analyzes the effects of introducing a graduated minimum wage in a model with optimal income taxation in which a government seeks to maximize social welfare. It shows that the optimal graduated minimum wage increases social welfare by increasing the low productivity workers'...

Research background: Applied welfare economics offers various social welfare functions (SWF) for appraising income distributions. Social planners commonly use two SWFs: SWFε implied by income inequality aversion (ε) and SWFv implied by rank inequality aversion (v). However, a voluntary choice...

Societies provide institutions that are costly to use, but able to enforce long-run relationships. We study the optimal decision problem of using self-governance for risk sharing or governance through enforcement provided by these institutions. Third-party enforcement is modelled as a costly...

This paper reviews the key economic issues concerning the welfare costs of inflation and deflation, with a view to shedding light on the desirable properties of the inflation process. Our review of the evidence on the overall costs of inflation and deflation indicates that such costs could be...

When people share risk in financial markets, intermediaries provide costly enforcement for most trades and, hence, are an integral part of financial marketsu0092 organization. We assess the degree of risk sharing that can be achieved through financial markets when enforcement is based on the...

In this paper we provide two simple new versions of Arrow’s impossibility theorem, in a model with only one preference profile. Both versions are transparent, requiring minimal mathematical sophistication. The first version assumes there are only two people in society, whose preferences are...

We introduce a framework of electoral competition in which voters have general preferences over candidates' characteristics and policies. Candidates' immutable characteristics (such as gender, race or previously committed policy positions) are exogenously differentiated, while candidates can...