Papers by B. Douglas Bernheim
Oxford University Press eBooks, Dec 1, 2014
AEA papers and proceedings, May 1, 2022
We examine the problem of setting optimal default options such as passively selected contribution... more We examine the problem of setting optimal default options such as passively selected contribution rates in employee-directed pension plans. Existing results suggest that a simple rule of thumb, opt-out minimization, is optimal under special conditions, but this result is fragile, and the literature does not provide a general analytic solution. In a recent paper, we demonstrated with considerable generality that weighted opt-out minimization is approximately optimal, and we identified surprisingly broad conditions under which unweighted opt-out minimization is approximately optimal. Here we provide concise intuition for these results.
Social Science Research Network, 2022
National Bureau of Economic Research, 1987
In this paper, I show that, under relatively weak conditions, dynastic equilibria are never welfa... more In this paper, I show that, under relatively weak conditions, dynastic equilibria are never welfare optima. If a social planner sets policy to maximi.ze a social welfare function, then, except in extreme cases where the planner cares only about a single generation, successive generations will never be linked through altruistically motivated transfers. This suggests that the dynastic model is unsuitable for normative analysis, and, to the extent governments actually behave in this manner, the model is also inappropriate for positive analysis. In addition, I show that, except in a few special cases, the planner's preferences are dynamically inconsistent. If the planner can successfully resolve this inconsistency, then the central result is somewhat modified.
We examine a model of conspicuous consumption and explore the nature of competition in markets fo... more We examine a model of conspicuous consumption and explore the nature of competition in markets for conspicuous goods. We assume that, in addition to intrinsic utility, individuals seek status, and that perceptions of wealth affect status. Under identifiable conditions, the model generates Veblen effects: utility is positively related to the price of the good consumed. Equilibria are then characterized by the existence of "budget' brands (which are sold at a price equal to marginal cost), as well as 'luxury" brands (which are sold at a price above marginal cost, despite the fact that producers are perfectly competitive). Luxury brands are not intrinsically superior to budget brands but are purchased by consumers who seek to signal high levels of wealth. Within the context of this model, an appropriately designed luxury tax is a non-distortionary tax on pure profits.
Handbook of behavioral economics, 2018
have provided excellent research assistance. Taubinsky thanks the Sloan Foundation for support. T... more have provided excellent research assistance. Taubinsky thanks the Sloan Foundation for support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
Journal of Accounting, Auditing & Finance, Oct 1, 1991
Annals of economics and statistics, 2016
This paper analyzes the cost of capital in four industrial countries (Japan, United Kingdom, Unit... more This paper analyzes the cost of capital in four industrial countries (Japan, United Kingdom, United States, West Germany). It shows that international disparities in the cost of capital are to be imputed largely to different internal conditions on credit markets. However, the effect of the tax systems on the cost of capital cannot be ignored. It is shown, for instance, that simple tax reforms in the United States could reduce the capital cost differential with Japan by more than 60%.
Social Science Research Network, 2019
Cumulative Prospect Theory (CPT), the leading behavioral account of decisionmaking under uncertai... more Cumulative Prospect Theory (CPT), the leading behavioral account of decisionmaking under uncertainty, avoids the dominance violations implicit in Prospect Theory (PT) by assuming that the probability weight applied to a given outcome depends on its ranking. We devise a simple and direct non-parametric method for measuring the change in relative probability weights resulting from a change in payoff ranks. We find no evidence that these weights are even modestly sensitive to ranks. Conventional calibrations of CPT preferences imply that the percentage change in probability weights should be an order of magnitude larger than we observe. It follows either that probability weighting is not rank-dependent, or that the weighting function is nearly linear. Non-parametric measurement of the change in relative probability weights resulting from changes in probabilities rules out the second possibility. Additional tests nevertheless indicate that the dominance patterns predicted by PT do not arise. We reconcile these findings by positing a form of complexity aversion that generalizes the well-known certainty effect.
Recent work demonstrates that dynastic assumptions gtarantee the irrelevance of all redistributio... more Recent work demonstrates that dynastic assumptions gtarantee the irrelevance of all redistributional policies, distortionary taxes, and prices-the neutrality of fiscal policy (Ricardian equivalence) is only the "tip of the iceburg.' In this paper, we investigate the possibility of reinstating approximate Ricardian equivalence by introducing a small amount of friction in intergenerational links. If Ricardian equivalence depends upon significantly snorter chains of links than do these stronger neutrality results, then friction may dissipate the effects that generate strong neutrality, without significantly affecting the Ricardian result. Although this intuition turns out to be essentially correct, we show that models with small amounts of friction have other untenable implications. We conclude that the theoretical case for Ricardlan equivalence remains tenuous.
Palgrave Macmillan UK eBooks, 2010
Behavioural public economics incorporates ideas from behavioural economics, psychology, and neuro... more Behavioural public economics incorporates ideas from behavioural economics, psychology, and neuroscience in the analysis and design of public policies. This article provides an introduction to its methods and discusses its application to savings and addiction policy.
Elsevier eBooks, 2009
Publisher Summary Most members of the neuroeconomics community believe that the relevance of thei... more Publisher Summary Most members of the neuroeconomics community believe that the relevance of their field to economics is practically self-evident; consequently, they are puzzled by the persistent skepticism among mainstream economists. To motivate their agenda, they sometimes draw analogies to other subfields that have successfully opened black boxes. For example, some liken neuroeconomics to the theory of the firm, which opened up the black box of production decisions. From the perspective of a mainstream economist, analogies between neuroeconomics and the theory of the firm are misleading. In developing the theory of the firm, economists were not motivated by the desire to improve the measurement of reduced form of production functions relating output to labor and capital. Rather, questions pertaining to the internal workings of the firm fall squarely within the historical boundaries of mainstream economics, because they concern the nature of organized exchange between individuals. An economist who seeks to understand prices, wages, risk-sharing, and other traditional aspects of resource allocation has an undeniable stake in understanding how trade plays out within a range of institutions, including markets and firms, and how different types of exchange come to be governed by different types of institutions. In contrast, the mind is not an economic institution, and exchange between individuals does not take place within it.
The American Economic Review, 1989
Roughly fifteen years ago, Martin Feld-stein (1974) published an influential em-pirical study, in... more Roughly fifteen years ago, Martin Feld-stein (1974) published an influential em-pirical study, in which he claimed that Social Security significantly depresses private sav-ing. His findings were, from the first, highly controversial. Despite the subsequent ap-pearance of ...
The American Economic Review, Feb 1, 2021
We propose and develop a dynamic theory of endogenous preference formation in which people adopt ... more We propose and develop a dynamic theory of endogenous preference formation in which people adopt worldviews that shape their judgments about their experiences. The framework highlights the role of mindset flexibility, a trait that determines the relative weights the decision-maker places on her current and anticipated worldviews when evaluating future outcomes. The theory generates rich behavioral dynamics, thereby illuminating a wide range of applications and providing potential explanations for a variety of observed phenomena. (JEL D11, D81, D91, Z13)
We propose and implement a new test of the dividend signaling hypothesis that is designed to disc... more We propose and implement a new test of the dividend signaling hypothesis that is designed to discriminate between dividend signaling and other theories that would account for the apparent existence of a dividend preference. Our test refines the use of data on stock price responses to dividend announcements. In particular, we study the effect of dividend taxation on the bang-for-the-buck, which we define as the share price response per dollar of dividends. Most dividend signaling models imply that an increase in dividend taxation should increase the bang-for-the-buck. In contrast, other dividend preference theories imply that an increase in dividend taxation should decrease the bang-for-the-buck. Since there have recently been considerable variation in the tax treatment of dividends, we are able to study dividend announcement effects under different tax regimes. Our central finding is that there is a strong positive relationship between dividend tax rates and the bang-for-the-buck. This result supports the dividend signaling hypothesis, and is consistent with alternatives. The paper also provides corroborating evidence based on the relationship between the bang-for-the-buck and bond ratings.
The Review of Economic Studies, 1989
The purpose of this paper is to explore the welfare properties of dynastic equilibria. There are ... more The purpose of this paper is to explore the welfare properties of dynastic equilibria. There are three central findings. First, under relatively weak conditions, welfare optima cannot be implemented as dynastic equilibria with positive levels of transfers. Second, intergenerational altruism ...
Econometrica, Jul 1, 1986
We extend the principal-agent framework with risk-neutral principals to situations in which sever... more We extend the principal-agent framework with risk-neutral principals to situations in which several principals simultaneously and independently attempt to influence a common agent. We show that implementation is, in the aggregate, always efficient (cost-minimizing), and that ...
Journal of Public Economics, Jun 1, 2001
Over the last 40 years, a majority of states have adopted consumer education policies, and a siza... more Over the last 40 years, a majority of states have adopted consumer education policies, and a sizable minority have mandated that high school students receive instruction on topics related to household financial decision-making. In this paper, we attempt to determine whether these mandates have had any effect on subsequent decisions. We exploit the variation in requirements both across states and
Quarterly Journal of Economics, Feb 1, 1986
... Similar institutions are also observed in a number of retail industries including travel,insu... more ... Similar institutions are also observed in a number of retail industries including travel,insurance, and real estate. While our model does not describe the process and strategy of delegation, it does apply to post-delegation. behavior. ...
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Papers by B. Douglas Bernheim