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This chapter considers alternative models of the demand for (diffusion of) soft innovations. From the several models, the list of factors shown to be important in the innovation process includes the level and, particularly, changes in costs of generating and developing innovations, fixed costs of production, variable production costs, the number of suppliers, the allocation of buyers' preferences, buyers' knowledge bases, buyers price, and technology expectations and the nature of the product. The theoretical analysis in Chapters 7 and 8 also jointly shows that there is no guarantee that free markets will produce a welfare optimal outcome. The outcome may involve either too much or too little variety and innovation. The market failure thus identified can come from a number of sources. One general source is that there are positive or negative externalities in the market that drive a wedge between private and social incentives. Other factors such as creative destruction effects and the standing on shoulders effects also have a role to play.

This chapter describes methods for computing equilibria of economies with consumers who have heterogeneous preferences and endowments. It adopts simplifications that facilitate coping with heterogeneity. In the present chapter, consumers differ only with respect to their endowments and the processes {bt} that disturb their preferences. It assumes that consumers have a common information set that includes observations on past values of the economy-wide capital stocks and the common exogenous state variables that drive each of the individual preference shock processes and the technology shock process {dt}. Preferences of individual consumers can be aggregated by summing both preference shocks and initial endowments across consumers, thereby forming a representative consumer. All aggregate aspects of a competitive equilibrium can be computed by forming the representative consumer and proceeding as in Chapter 7. The chapter shows how to calculate individual allocations by using the demand functions described in Chapter 9.3.

There has been a high level of public engagement in the regulation of GMOs and this chapter seeks to explore this engagement, whether conducted through formal or informal channels. In the case of formal channels, it examines the opportunities for public participation under measures enacted at international, European Union, and national levels, addressing, inter alia, the detailed provisions of the Cartagena Protocol and Aarhus Convention. In the case of informal channels, attention is directed to consumer preferences and public protest, and a salient feature identified is the reluctance of United Kingdom juries to convict anti-GM activists, as compared with the willingness of (non-jury) courts in France to convict Faucheurs Volontaires.

This chapter examines how many important consumption decisions concern choices, the consequences of which are uncertain at the time the choice is made. It begins with the theory of von Neumann–Morgenstern expected utility. In this theory, uncertain prospects are modeled as probability distributions over a given set of prizes. That is, the probabilities of various prizes are given as part of the description of the object. The chapter then takes up the special case where the prizes are amounts of money; then one is able to say a bit more about the nature of the utility function that represents preferences. It discusses a few applications of this theory to the topic of market demand. Finally, the chapter turns to a richer theory, where uncertain prospects are functions from “states of nature” to prizes, and where probabilities arise subjectively, as part of the representation of a consumer's preferences.

This chapter evaluates the theory of social choice. The theory of social choice is concerned with the selection of some social outcome that affects a number of individuals, when those individuals have diverse and conflicting preferences. The chapter characterizes desirable properties of the outcome that is to be selected, properties that usually involve notions of efficiency and equity. In some cases, those properties are insufficient to fix on a single social outcome, but instead restrict attention to some subset of the feasible outcomes. Adding more properties can sometimes pin down a single social outcome that has all the desired attributes. And in some contexts, there is now a way to satisfy simultaneously all the properties thought to be desirable.

This chapter discusses microeconomics theories of reference-dependent consumer preferences and loss aversion. It provides evidence that under some circumstances preferences depend on a reference and explains that when the reference point is the current endowment, choice exhibits a status quo bias. It explains that when preferences are reference-dependent, changes in budget constraints can induce changes in preferences and that the Pareto set retains its interpretation as an equilibrium locus but loses its status as a set of optimal allocations.

This chapter shows how data of the types discussed in Chapters 1 and 2 can be analysed to give an indication of sustainability in the present. A wide range of possible indicator variables is explored, highlighting the strengths and weaknesses of each. In particular, distinctions are drawn between studies that focus on biological variables (such as species abundance), variables related to the interaction between hunters and prey (such as offtake rates), variables associated with economics (such as profitability), and variables associated with the social setting (such as consumer preferences). A range of analytical approaches is described, from simple comparisons of the indicator variable with a benchmark, trends in the indicator over time, associations between indicator and multiple explanatory variables, and comparison of indicator states across multiple studies (meta-analysis).

This chapter focuses on consumer preference for, and satisfaction with, the different types of palliative care. The term ‘consumer’ in palliative care refers to the patients, families, friends, and informal carers. The focus of the chapter is confined to the views of patients and ‘informal care-givers’, which may include families, friends, and relatives. The topics discussed are the concept and methods of measuring satisfaction, satisfaction and opinions in in-patient hospice care in the UK and US, satisfaction and opinions in the hospice home care services in the UK and US, and satisfaction and opinions in the specialist outreach services in the community. The chapter also provides a comparative study of consumer views on hospital and community care.

This chapter examines alternative annuity designs, and the interactions between annuity preference and publicly provided safety net support. It is shown that with a minimum pension guarantee, the variable annuity is the most preferred annuity. Inflation insured annuity products are popular among the rich and risk-averse. Non-life instruments are also popular, but are quite expensive for government revenue.

This chapter examines two factors that influence consumer preferences: the context in which choices are made and the framing or description of alternatives. It explains that choice can be influenced by background and local context because people are more likely to buy a good at a given price if the background context is one of higher rather than lower prices. Similarly, people are more likely to choose a product if there is no obvious dominant alternative. Several relevant computational exercises and their solutions are provided.

Between 1950 and 2000, the four-firm producer-concentration ratio for beer increased from twenty-two to ninety-five in the United States. In Germany, the four-firm producer-concentration ratio was just twenty-nine in 2000; and the eight-firm ratio in Germany was smaller than the one-firm ratio in the United States. In 2005, after five years of important mergers involving big brewers, the German beer industry was still much less concentrated than its American counterpart. This chapter discusses several candidate explanations for the failure of beer-producer-concentration to rise as much in Germany as in the United States: the relevance of the new technologies to German brewers, the preferences of German consumers, the rules for advertising on German television and other factors, largely absent from the consensus interpretation of American experience.

Rational consumers are assumed to maximize their preferences subject to the constraints they perceive. With preferences that are representable by utility functions, the consumer's problem is modeled as one of maximizing a standard utility function subject to a budget constraint. This maximization problem determines the consumer's demand, a demand that is a function of the consumer's wealth and market prices. These demand functions feature several remarkable properties that make up the bulk of classical consumer theory. The most important ones are Walras law, the weak axiom of revealed preferences, and the negative definiteness of the Slutsky matrices. An important part of consumer theory is devoted to establishing these properties of demand functions when the latter come from the budget constrained maximization of standard utility function. This chapter focuses on this classical part of the theory. It also characterizes consumer's demand functions simply by their properties.

Classical consumer theory is essentially the theory of utility maximization under a budget constraint. This theory starts with the definition of consumers' preferences. In classical consumer theory, preferences are assumed to be transitive, complete, monotone, and convex. These preferences can then be represented by utility functions. The latter are mathematically easier to handle than preferences. Another reason for being interested in utility functions goes back to the early phases of economic theory. Then, it was thought that utility functions could be used as a measure of consumer's satisfaction or utility. This chapter is devoted to a presentation of the basic issues regarding preferences and their representability by utility functions.

In a world with volatile food prices, countries have an incentive to shelter their populations from the induced real income shocks. When some agents are net food producers while others are net consumers, there is scope for insurance between the two groups. A domestic social protection scheme could transfer resources away from the former group to the latter in times of high food prices, and do the reverse otherwise. We show that in the presence of consumer preference heterogeneity, implementing the optimal social protection policy can potentially induce higher food price volatility. Such a policy indeed generates a counter-cyclical demand shock that amplifies the effects of the underlying food shortage.

Although global exporters, foreign producers, and domestic producers have been battling each other in China’s chocolate market for decades, it is not clear how Chinese consumers respond to the various brands. This chapter discusses the implementation of two tasting experiments to test the preferences of Chinese consumers. A ‘blind condition’, where participants were not told about the chocolate brands, was compared with a ‘non-blind condition’, where participants were informed about the brands before tasting. The results suggest that brand information does influence tasting experience. Chinese consumers have higher preferences for imported brands as compared with domestic brands or foreign brands which are produced in China.

The Deaton–Dreze (2009) explanation of a decline in calorie intake despite rapid economic growth in terms of lower calorie ‘requirements’ is incomplete. This chapter fills this gap by taking into account the influences of food prices, growing affluence, urbanization and life-style changes and less strenuous activity levels. Insights into changing consumer preferences are given.

This chapter focuses on the change in the consumer preference from processed to fresh foods, which is responsible for the increase in small-size farm food production, and presents several incidents of food scares around the world that have made the food industry become more cautious about food safety. It discusses changes in the eating habits of people following reports on obesity and fast food. Urban eaters’ interest in local food systems is increasing and helping the local farming communities by increasing the value of local foods. Fast-food chains, supermarkets, and high-end restaurants adopting the new trend of organic and natural foods following the changing food trend are also discussed.

This chapter analyses the authorisation mechanism—a demanding cost-benefit test for those applicants who seek advance approval of their potentially contravening conduct. The “public benefits” and detriments the Commission can assess under this test are very broad. The potentially relevant matters go well beyond economic efficiencies to intangible and unquantified gains or harms. A thorny issue has been the distributional question. Does the Act have an implicit bias in favour of consumers when it comes to weighing benefits and detriments? Must benefits be passed on to consumers? The Chicagoan thinking came to dominate and the Commission pronounced it was “neutral” regarding wealth transfers from consumers to producers. The 2001 Amendment, which altered the purpose of the Act to clarify that competition operated for the long-term benefit of New Zealand consumers, did not initially alter the Chicagoan stance. Over time, however, the purely neutral stance towards wealth transfers has been eroded. The Court of Appeal decided that private gains, redounding solely to the companies alone, were not sufficient. “Modified total welfare” arrived as a new term in the New Zealand antitrust lexicon. The chapter also analyses the non-neutral stance where the benefits go to foreign owners of local companies.