When Can a Demand System Be Described by a Multinomial Logit with Income Effect?
We propose a general model of monopolistic competition, which encompasses existing models while being flexible enough to take into account new demand and competition features. Even though preferences need not be additive and/or homothetic, the market outcome is still driven by the sole variable elasticity of substitution. We impose elementary conditions on this function to guarantee empirically relevant properties of a free-entry equilibrium. Comparative statics with respect to market size and productivity shocks are characterized through necessary and sufficient conditions. Furthermore, we show that the attention to the CES based on its normative implications was misguided: we propose a new class of preferences, which express consumers' uncertainty about their love for variety, that yield variable markups and may sustain the optimum. Last, we show how our approach can cope with heterogeneous firms once it is recognized that the elasticity of substitution is firm-specific.
We propose a model of monopolistic competition with additive preferences and variable marginal costs. Using the concept of "relative love for variety," we provide a full characterization of the free-entry equilibrium. When the relative love for variety increases with individual consumption, the market generates pro-competitive effects. When it decreases, the market mimics anti-competitive behavior. The constant elasticity of substitution is the only case in which all competitive effects are washed out. We also show that our results hold true when the economy involves several sectors, firms are heterogeneous, and preferences are given by the quadratic utility and the translog.
To deal with the inadequate disposal of e-waste, many states have instituted bans on its disposal in municipal landfills. However, the effectiveness of e-waste bans does not seem to have been analyzed yet. This paper starts addressing this gap. Using data from a survey of U.S. households, we estimate multivariate logit models to explain past disposal behavior by households of broken/obsolete ("junk") cell phones and disposal intentions for "junk" TVs. Our explanatory variables include factors summarizing general awareness of environmental issues, pro-environmental behavior in the past year, attitudes toward recycling small electronics (for the cell phones model only), socio-economic and demographic characteristics, and the presence of state e-waste bans. We find that California's Cell Phone Recycling Act had a significant and positive impact on the recycling of junk cell phones; however, state disposal bans for junk TVs seem to have been mostly ineffective, probably because they were poorly publicized and enforced. Their effectiveness could be enhanced by providing more information about e-waste recycling to women, and more generally to adults under 60. Given the disappointing performance of policies implemented to-date to enhance the collection of e-waste, it may be time to explore economic instruments such as deposit-refund systems.