it is again for the same reason that the companies

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Unformatted text preview: h wooden benches; it would be a small sacri…ce for popularity. What the company is trying to do is to prevent the passenger who can pay the second-class fare from travelling third class; it hits the poor, not because it wants to hurt them, but to frighten the rich. J. Lagerlöf (U of Copenhagen) Microeconomics (MikØk) 3: L2-II Spring ‘ 11 23 / 29 Fully Non-Linear Tari¤: Dupuit’ Conjecture (3/3) s And then Dupuit explains the reason for quality distortions between …rst- and second-class: [...] it is again for the same reason that the companies, having proved almost cruel to third-class passengers and mean to second-class ones, become lavish in dealing with …rst-class passengers. Having refused the poor what is necessary, they give the rich what is super‡uous. However, in our theoretical model there is e¢ ciency — and thus no upward distortion — at the top. I To reverse this result one could assume that the high type gets a higher marginal utility (as here) but a lower total utility. [Maybe we can look at that in a problem set.] J. Lagerlöf (U of Copenhagen) Microeconomics (MikØk) 3: L2-II Spring ‘ 11 24 / 29 Fully Non-Linear Tari¤: Serving both types? (1/3) Recall that we assumed that the parameters were such that the …rm optimally chose contracts such that both types wanted to consume. I Intuitively, this should be the case when there are relatively many low-type consumers in the population (ν large). For small ν, it’ optimal to ignore the low types: s FB and choose t so that the high types just barely I Set q = q want to consume. [Why?] Problem Set 2 illustrates this. There it’ assumed that c = 0 and s 12 q for q 2 [0, θ ] . u (q ) = q 2θ So the overall utility θ u (q ) equals θ u (q...
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