Michael Burda - Sciences Po Spire

U M 1 = U R 1 (22)
A(hR)f 0 = V M
1 /U M 1 (23)
A(hR)(f − hR
hM
f 0 − γ) =V R
1 /U R 1
(24)
V M
1 + V R
1 = V M
2 + V R
2 . (25)
Denote the solution chosen by the social planner as {CM∗ ,CR∗ ,h∗ R,h∗ M,s∗ }.
It deviates from an arbitrarily regulated market solution by explicitly taking
into account the two external effects imposed by the retail sector on the
economy: first, the effect of leisure’s timing on total welfare; and second,
the congestion externality (”ruinous competition”) implied by the atomistic
behavior of retailers. The first condition equates marginal utility of consumption
(but not necessarily consumption levels) across the two families.
The second and third equations equate the the marginal (social) product of
labor for each family with the marginal rate of substitution of consumption
for s-leisure in each family. The last condition (25) explicitly recognizes the
social externality of c-leisure, and equates the net social utility of an additional
hour spent by the two representative households jointly in c-leisure to
the “opportunity costs“ spent in solitude.
A References
Batzer, E. (1984) “Änderung des Ladenschlußgesetzes“? Ifo-Schnelldienst
15/84, 6-8.
Becker, G. (1965) “A Theory of the Allocation of Time“ Economic Journal
75:493-517.
Bennett, R. (1981) “Regulation of Services: Retail Trading Hours,“ in B.
Twohill, ed., Government Regulation of Industry Conference Series Number
9, Newcastle: Institute of Industrial Economics.
Clemenz, G. (1990) “Non-sequential Consumer Search and the Consequences
of a Deregulation of Trading Hours,“ European Economic Review
34:1323-37.
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