Journal of Public Economic Theory最新文献

We study all-pay auctions under incomplete information in which the designer can impose taxes or subsidies, and his expected payoff is the contestants' expected total effort minus the cost of subsidies, or, alternatively, plus the tax payment. When contestants have linear effort cost functions, we show that taxing the winner's payoff is profitable for the contest designer, and particularly more profitable than the same model with no taxation or the same model with contestants' effort taxation. When the contestants' effort cost functions are convex and the taxation rate is relatively low, we show that the designer should tax the winner's payoff while subsidizing all of the other contestants' effort costs. As a result, contest organizers should think about combining taxation and subsidies in their contests because they complement rather than substitute each other.

We consider a research laboratory that owns a patented process innovation and two firms producing differentiating goods in a Bertrand setting. The laboratory considers the possibility to license the innovation as an outsider patentee or to merge with one of the firms in the industry, becoming an incumbent patentee. Licensing takes place through observable two-part tariff contracts. We show that the merger is profitable only for small innovations and increases social welfare for both small and large innovations. Even though we allow the royalty to be higher than the size of the innovation, and opposite to the result in a Cournot setting, we find a region where the merger is both profitable and welfare improving. This occurs only for small innovations and sufficiently differentiated goods. The same result arises for consumer surplus which allows us to derive the optimal merger policy: compared with Cournot competition, a Bertrand setting calls for a more lenient merger policy.

Individual actions can depend on prevailing social norms. We investigate how optimal policy to promote pro-social action should exploit the underlying social dynamics. We develop a dynamic model of prosocial action in which conformist consumers repeatedly choose whether to engage in some prosocial activity. Whereas individual behavior is not observed, the overall participation rate in the previous period is common knowledge. We demonstrate how conformity can lead to multiple steady states and how their selection depends on starting conditions and discount factors. We further show that the optimal subsidy path can be non-monotonic and can decrease before reaching the steady state-level. Our model thus provides a rationale for introductory subsidies to promote environmentally friendly behavior from a behavioral perspective.

Our research question is whether it is possible and how to counteract “the tragedy of the commons” if facing various limitations of real-world economies. To answer it, we derive regulatory tax–subsidy systems and self-enforcing environmental agreements in a problem of extraction of common renewable resources. The first considered limitation is that the feasible class of tax–subsidy systems may have a compl icated form, for example, there are transition periods for smooth reduction of fishing. The alternative limitation is that there is no institution that can impose taxes or subsidize, so sustainability can be achieved only by self-enforcing international agreements. The next limitation is in those agreements: we assume that it takes time to detect a defection. We study these enforcement tools in a continuous-time version of a Fish War type game with $��n�$ countries, with fish indispensable for their economies. We calculate the social optimum, a Nash equilibrium, and partial cooperation equilibria. The Nash equilibrium leads to the depletion of fish, while the social optimum typically results in sustainability. For partial cooperation, only two-country coalitions are stable. We calculate tax–subsidy systems that enforce maximization of joint payoff, also if there are additional constraints, and we propose an algorithm that looks for such a system in an arbitrary class of regulatory tax–subsidy systems. For the international agreement with imperfect monitoring, we are interested in the maximal detection delay for which the agreement remains self-enforcing. Counterintuitively, the more the players, the more stable the agreement.

This paper introduces a model where a briber designs a bribing schedule targeted at the governing party within a bipartisan system to secure favorable treatment. Detected corruption increases voters' resentment, and in turn, the risk of political turnover—raising the minimum acceptable bribe. Periods without corruption mitigate such a risk. Should the briber deem bribing unprofitable for sufficiently high levels of resentment, resentment converges to a steady state in finite time. Conversely, if the briber perceives bribing as profitable regardless of the resentment level, the dynamics may result in continuous bribing and an unbounded increase in resentment (exploding dynamics). The model underscores the complexity of addressing corruption, emphasizing the need to balance reducing corruption with preventing excessive political instability. Societal forgiveness and sensitivity significantly shape corruption dynamics and public resentment. While forgiveness reduces long-run resentment, it concurrently exacerbates long-term corruption and, on balance, may have a detrimental effect on long-term welfare. Sensitivity has no long-run effect on resentment, while it reduces both corruption activity and political instability in the long term. Finally, exogenous political instability exacerbates corruption, resentment, and the risk of exploding dynamics.

We develop a conceptual model characterizing two types of individuals: one myopic and the other hyperopic. A myopic individual ignores his private contributions to both a social and private negative externality, as well as the effect that his accumulation of stuff (i.e., the stock of consumption goods) has on his habit parameter. A hyperopic individual internalizes both externalities as well as his habit-formation effect. We find that the hyperopic individual consumes a greater amount of a clean good and a lesser amount of a dirty good, with the magnitude of the latter difference being greater than the magnitude of the former. Consequently, the hyperopic individual's cumulative consumption of the two goods is lower. The hyperopic individual's lower cumulative consumption also contributes to a less-persistent consumption habit. Further, we explore the extent to which the allocation of consumption across the clean and dirty goods made by an astigmatic individual (an intermediate type of individual who internalizes the private externality, as well as the habit-formation effect) diverges from the myopic individual's allocation. We consider the implications of our findings for traditional environmental tax policy as it applies to myopic and astigmatic individuals. Conceptually, we find that Pigovian tax rates in the presence of habit formation diverge from corresponding standard rates that ignore habit formation based on the difference between the magnitudes of the cumulative marginal benefit associated with habit formation and the marginal cost associated with the accumulation of stuff. Results from a simple numerical analysis demonstrate these conceptual results and more.

We develop a model to analyze policymakers' incentives to install policy rules, comparing the case of no rule with a binding and a contingent policy rule that allows policymakers to suspend the rule in response to a sufficiently large shock. First, abstracting from political polarization, we show that the choice of the policy rule depends on policymakers' policy targets. Depending on the policy target, there is an unambiguous ranking going from a no-rule regime to a contingent rule to a binding rule. Next, allowing for political polarization, the incentive to install the different types of rules changes with political polarization between different policymakers and their probability of being elected into office. Increasing political polarization when there is a sufficiently high election probability for policymakers with a high policy target increases the preference for more binding policy rules. It also leads to stricter rules in a contingent rule regime.

We analyze the self-reporting incentives fostered by a leniency program within a criminal network formed by a supplier of an illegal good and his dealers who compete against each other in the product market. We show that when it is viable, a first-informant rule always performs better than an all-informant rule—that is, it induces a lower level of crime. Nevertheless, the viability of a first-informant rule may be compromised if the baseline probability of conviction is sufficiently low, thereby placing disproportionate reliance on leniency over other investigative efforts for securing convictions.

We conduct a theoretical analysis to explore how the distribution of wealth in society impacts the social costs of crime and law enforcement. We show that a reduction in inequality reduces these costs when enforcement and nonmonetary punishment are equitable, that is, they do not discriminate among offenders based on their wealth. However, when enforcement or nonmonetary punishment is discriminatory, a reduction in inequality may increase the social costs of crime and law enforcement, in particular when it occurs among poorer individuals. Thus, there is a complementarity between equity in criminal justice and distributional equity.

This paper begins with a survey of the literature on the political economy approaches to labor income taxation. We focus on recent progress made by examining in detail the specific properties of nonlinear taxes derived in the context of voting. Next, we present new results on the existence of a majority voting equilibrium that unifies work in the standard framework. Finally, we discuss how recent theoretical results help us uncover empirical patterns from the last 50 years in the US tax system, namely, a sharp decrease in top marginal tax rates, the rise of the Earned Income Tax Credit, and increased progressivity in the middle of the income distribution.