Recent blewp items

From Independence to Politics in Financial Regulation

Tue, 11 Dec 2012 00:00:00 +0000

From Independence to Politics in Financial Regulation

Doctor Frankenstein's International Organization

Mon, 12 Mar 2012 00:00:00 +0000

Doctor Frankenstein's International Organization

The Case Against Consent in International Law

Mon, 12 Mar 2012 00:00:00 +0000

The Case Against Consent in International Law

Understanding the Democratic Transition in South Africa

Thu, 26 Jan 2012 00:00:00 +0000

South Africa’s transition from apartheid to democracy stands as one of the past century’s

most important political events. The transition has been successful to this point because the

new constitution adopted a form of federal governance that has been able to provide

protection for the economic elite from maximal redistributive taxation. Appropriately

structured, federal governance creates a “hostage game” in which the majority central

government controls the tax rate but elite run province(s) control the provision of important

redistributive services to a significant fraction of lower income households. At least to

today, the political economy of South Africa has found a stable equilibrium with less than

maximal redistributive taxation. Moreover, the move to a democratic federalist system has

improved the economic welfare of both the white minority and the black majority. Whether

the federal structure can continue...

Emissions Trading and Social Justice

Tue, 20 Sep 2011 00:00:00 +0000

Cap and trade is controversial in part because of claims that it is unjust, an issue that was highlighted by recent litigation against California’s proposed carbon market. This essay considers an array of fairness issues relating to cap and trade. In terms of fairness to industry, the conclusion is that distributing free allowances overcompensates firms for the cost of compliance, assuming any compensation is warranted. Industry should not receive, in effect, ownership of the atmosphere at the expense of the public. Environmental justice advocates argue that cap-and-trade systems promote hotspots and encourage dirtier, older plants to continue operating to the detriment of some communities. Designers of cap-and-trade systems should be alert to possible hotspots, particularly in disadvantaged communities. Little reason exists, however, to believe that any such hotspots are systematically linked with disadvantage. Finally, any regulation of emissions raises costs, with a disproportionate...

Law, Sustainability, and the Pursuit of Happiness

Tue, 30 Aug 2011 00:00:00 +0000

Environmental law focuses on regulating the production of energy and goods. Less attention has been given to reducing the environmental footprint of consumption. This Article brings together several strands of research, including psychological and economic research on subjective wellbeing; research on energy efficiency; writings by urban planners on sustainable communities; and recent work on individual behavior and sustainability. The conclusion, in a nutshell, is that changes in consumption of goods and energy, assisted by improvements in urban design and transportation infrastructure, can significantly reduce energy use and environmental harm. A variety of legal tools are available to promote these changes. Remarkably, many of the steps needed for sustainability can actually improve quality of life, adding to individual satisfaction. Thus, sustainability for society and the pursuit of individual happiness need not be at odds.

A Way Forward for State Taxation of E-Commerce

Mon, 29 Aug 2011 00:00:00 +0000

We propose a novel solution for states that wish to tax interstate e-commerce based on fully and adequately compensating remote vendors for all tax compliance costs. We argue that our proposed solution is compatible with the Quill framework for when states can constitutionally impose burdens on remote vendors. We argue that unlike our proposed solution, the recent state attempts to tax interstate e-commerce through so-called “Amazon laws” are unconstitutional, ineffective, or both. We thus urge the states to adopt our proposed approach as the best way forward for state taxation of interstate e-commerce.

Preliminary References — Analyzing the Determinants that Made the ECJ the Powerful Court it Is

Tue, 17 May 2011 00:00:00 +0000

Preliminary References — Analyzing the Determinants that Made the ECJ the Powerful Court it Is

A Model of Optimal Government Bailouts

Thu, 5 May 2011 00:00:00 +0000

We analyze incentive-efficient government bailouts within a canonical model of intra-firm moral hazard. Bailouts exacerbate the moral hazard of firms and managers in two ways. First, they make them less averse to failing. Second, the taxes to fund bailouts dampen their incentives. Nevertheless, if third-party externalities from keeping the firm alive are strong, bailouts can improve welfare. Our model suggests that governments should use bailouts sparingly, where social externalities are large and subsidies small; eliminate incumbent owners and managers to improve a priori incentives; and finance bailouts through redistributive taxes on productive firms instead of forcing recipients to repay in the future.

Law and Growth Economics: A Framework for Research

Fri, 1 Apr 2011 00:00:00 +0000

Many law and economics models concern static efficiency and redistribution. The standard analysis of dynamic industries requires lawmakers to balance faster innovation against lower consumer prices. Sustained growth dominates these effects, so law and growth economics should focus on maximizing it. Law can increase the growth rate by making innovation more profitable. We distinguish innovation into phases -- discovering ideas, developing them with capital and labor, and marketing innovations. Strengthening intellectual property law and weakening antitrust law increases the costs of developing ideas, and also increases the revenues from marketing innovations. To maximize the profitability of innovation, law should balance these two effects. We use these ideas to develop a framework for law and growth economics.

Left, Right, and Center: Strategic Information Acquisition and Diversity in Judicial Panels

Thu, 24 Mar 2011 00:00:00 +0000

Left, Right, and Center: Strategic Information Acquisition and Diversity in Judicial Panels

The Consent Problem in International Law

Thu, 10 Mar 2011 00:00:00 +0000

International law is built on the foundation of state consent. A state’s legal obligations are overwhelmingly – some would say exclusively – based on its consent to be bound. This focus on consent offers maximal protection to individual states. If a country feels that a proposed change to international law does not serve its interests, it can avoid that change by withholding its agreement. This commitment to consent preserves the power of states, but it also creates a serious problem for the international system. Because any state can object to any proposed rule of international law, only changes that benefit every single affected state can be adopted. This creates a cumbersome status quo bias. Though legal reforms that would lead to a loss of well-being are avoided, so are reforms that would increase well-being for most but not all states. This Article challenges the conventional view of consent. It argues that our existing commitment to consent is excessive and that...

Rational Treaties: Article II, Congressional-Executive Agreements, and International Bargaining

Tue, 8 Mar 2011 00:00:00 +0000

Rational Treaties: Article II, Congressional-Executive Agreements, and International Bargaining

A Century of American Economic Review

Tue, 8 Mar 2011 00:00:00 +0000

Using information collected from American Economic Review publications of the last 100 years, we try to provide answers to various questions: Which are the top AER publishing institutions and countries? Which are the top AER papers based on citation success? How frequently is someone able to publish in AER? How equally is citation success distributed? Who are the top AER publishing authors? What is the level of cooperation among the authors? What drives the alphabetical name ordering? What are the individual characteristics of the AER authors, editors, editorial board members, and referees? How frequently do women publish in AER? What is the relationship between academic age, publication performance, and citation success? What are the paper characteristics? What influences the level of technique used in articles? Do connections have an influence on citation success? Who receives awards? Can awards increase the probability of publishing in AER at a later stage?

Negligent Misrepresentation as Contract

Mon, 28 Feb 2011 00:00:00 +0000

Negligent Misrepresentation as Contract

Three Essays On Tax Salience: Market Salience and Political Salience

Wed, 16 Feb 2011 00:00:00 +0000

This Article analyzes the behavioral economics literatures on how individuals understand taxation (i.e., tax salience). We evaluate how taxpayers respond to different presentations of tax prices both in their roles as market participants and as voters. We aim to combat several naïve notions about tax salience that currently exert a pernicious influence on tax lawmaking. In particular, we argue that it is normatively desirable for governments to reduce tax salience with respect to market decision making, and that there is nothing normatively objectionable about governments also reducing tax salience with respect to political decision making.

Freedom to Trade and the Competitive Process

Thu, 10 Feb 2011 00:00:00 +0000

Although antitrust courts sometimes stress the competitive process, they have not deeply explored what that process is. Inspired by the theory of the core, we explore the idea that the competitive process is the process of sellers and buyers forming improving coalitions. Much of antitrust can be seen as prohibiting firms’ attempts to restrain improving trade between their rivals and customers. In this way, antitrust protects firms’ and customers’ freedom to trade to their mutual betterment.

Antitrust in two-sided markets: Is competition always desirable?

Mon, 25 Oct 2010 00:00:00 +0000

The main objective of antitrust interventions is to assure competition in markets to benefit consumers. This paper challenges this common approach by examining the case of a satellite broadcasting network with monopoly power. First, satellite TV is identified as a two-sided market. It is then analyzed in the framework of the canonical model for two-sided markets developed by Rochet & Tirole (2004). The main finding is that the satellite network maximizes his profits by choosing a price formation which maximizes the overall welfare of all market participants. Even if the satellite network uses his monopoly power to introduce a fee to receive satellite TV, it would do so only until the semi-elasticity of the amount of consumers in regard to the per-interaction-price equals the one of the TV stations – exactly the point where welfare is maximized. It is therefore concluded that antitrust cases have to take a more in-depth look at two-sided markets before deciding that competition...

In Search of Copyright’s Lost Ark: Interpreting the Right to Distribute in the Internet Age

Tue, 12 Oct 2010 00:00:00 +0000

Prior to the emergence of peer-to-peer technology, the Copyright Act’s distribution right was largely dormant. Most enforcement actions were premised upon violations of the reproduction right. The relatively few cases invoking the distribution right involved arcane scenarios. During the past several years, direct enforcement of the Copyright Act against file sharers has brought the scope of the distribution right to center stage. Whereas the 1909 Act expressly protected the rights to “publish” and “vend,” the 1976 Act speaks of a right to “distribute.” Interpreting “distribute” narrowly, some courts have held that copyright owners must prove that a sound recording placed in a peer-to-peer share folder was actually downloaded to establish violation of the distribution right. Other courts hold that merely making a sound recording available violates the distribution right. The ramifications for copyright enforcement in the Internet age are substantial. Under the narrow...

Experimental Evidence of Tax Framing Effects on the Work/Leisure Decision

Wed, 1 Sep 2010 00:00:00 +0000

The choice between a set of alternatives often depends on how those alternatives are described, as well as their actual economic costs and benefits. We report results from an experiment designed to evaluate the impact of different descriptions of the after-tax wage on both (1) subjects’ willingness to perform a work task rather than an alternative leisure option, and (2) the amount of work performed by those subjects selecting the work task. Utilizing an experimental design that facilitates both within and between-subject comparisons, we find that that subjects’ willingness to work varies with the framing of the after-tax wage and that, in particular, subjects are much less willing to work when the returns to work are framed as a low wage plus a bonus than when the returns are described as a high wage minus a tax. Along the intensive margin we find suggestive evidence that subjects stop working just before their wage becomes subject to a significantly higher marginal...

Pooh-Poohing Copyright Law’s “Inalienable” Termination Rights

Tue, 16 Mar 2010 00:00:00 +0000

From its earliest manifestations, copyright law has struggled to deal with the equitable and efficient division of value and control between creators and the enterprises that distribute their works. And for almost as long as copyright has existed, there has been concern about creators getting the short end of the stick in their dealings with distributors. Since 1909, Congress has sought to protect authors and their families by allowing them to grant their copyrights for exploitation and then, decades later, to recapture those same rights. After judicial interpretation of the 1909 Act frustrated this intent by upholding advance assignments of renewal terms, Congress spoke unambiguously in 1976: “Termination of the grant may be effected notwithstanding any agreement to the contrary . . . .” Yet recent decisions in the Ninth and Second Circuits have eviscerated that clear Congressional command by permitting a grantee to renegotiate the terms of the grant so as to frustrate...

Inefficiencies in the Information Thicket: A Case Study of Derivative Disclosures During the Financial Crisis

Tue, 16 Mar 2010 00:00:00 +0000

Inefficiencies in the Information Thicket: A Case Study of Derivative Disclosures During the Financial Crisis

Fixing Failed States

Tue, 23 Feb 2010 00:00:00 +0000

Failed states pose one of the deepest challenges to American national security and international peace and stability. Finding a comprehensive and effective solution to the challenges of terrorism, human rights violations, or poverty and economic development requires some understanding of how to restore failed states. The response of the United States and its allies has remained the same: to rebuild the institutions of state control, and, if lucky, to plant a working democracy and a market economy within existing state borders. But many international law scholars remain openly dubious about the ability of states to rebuild – the problem is not failed states but the nation-state as the primary actor in international relations. This paper argues that both American and U.N policy on the one hand, and the conventional academic wisdom on the other hand, are mistaken. Building a normal nation-state with full sovereignty on every territory in the world, without changing any borders,...

Law and Economics from a Moderate Islamic perspective (LEMI)

Wed, 23 Sep 2009 00:00:00 +0000

Law and Economics from a Moderate Islamic perspective (LEMI)

The Deterrence Effect of Prison: Dynamic Theory and Evidence

Mon, 10 Aug 2009 00:00:00 +0000

Using administrative, longitudinal data on felony arrests in Florida, we exploit the discontinuous increase in the punitiveness of criminal sanctions at 18 to estimate the deterrence effect of incarceration. Our analysis suggests a 2 percent decline in the log-odds of offending at 18, with standard errors ruling out declines of 11 percent or more. We interpret these magnitudes using a stochastic dynamic extension of Becker's (1968) model of criminal behavior. Calibrating the model to match key empirical moments, we conclude that deterrence elasticities with respect to sentence lengths are no more negative than -0.13 for young offenders.

Federalism and South Africa's Democratic Bargain: The Zuma Challenge

Mon, 8 Jun 2009 00:00:00 +0000

South Africa’s transition from apartheid to democracy stands as one of the past century’s most important political events. The major hurdle to the transition was for the poor majority ANC to provide a credible promise not to exploit the full economic resources of the then ruling economic elite. The new constitution adopted a form of federal governance that has the potential to provide such protections by specifying an annual policy game where the new majority and the minority elite each control one policy instrument of importance to the other. Provided the majority is sufficiently patient and not “too demanding” in their preferences for redistribution the game has a stable equilibrium with less than maximal redistributive taxation. Our analysis makes these restrictions on preferences precise. The new, more radical ANC and the Zuma presidency challenge this equilibrium.

A Damage-Revelation Rationale for Coupon Remedies

Wed, 13 May 2009 00:00:00 +0000

This article studies optimal remedies in a setting in which damages vary among plaintiffs and are difficult to determine. We show that giving plaintiffs a choice between coupons to purchase units of the defendant's product at a discount and cash - a coupon-cash remedy - is superior to cash alone. The optimal coupon-cash remedy offers a cash amount that is less than the value of the coupons to plaintiffs who suffer relatively high harm. Such a remedy induces these plaintiffs to choose coupons, and plaintiffs who suffer relatively low harm to choose cash. Sorting plaintiffs in this way leads to better deterrence because the costs borne by defendants (the cash payments and the cost of providing coupons) more closely approximate the harms that they have caused.

Risk Taking and Gender in Hierarchies

Fri, 1 May 2009 00:00:00 +0000

In a labor market hierarchy, promotions are affected by the noisiness of information about the candidates. I study the hypothesis that males are more risk taking than females, and its implications for rates of promotion and abilities of survivors. I de…fine promotion hierarchies with and without memory, where memory means that promotion depends on the entire history of success. In both types of hierarchies, the surviving risk takers will have lower average ability whenever they have a higher survival rate. Further, even if more risk takers than non risk takers are promoted in the beginning of the hierarchy, that will be reversed over time. The risk takers will eventually have a lower survival rate, but higher ability. As a consequence of these differences, the various requirements of employment law cannot simultaneously be satisfi…ed. Further, if promotion standards are chosen to maximize profit, the standards will reflect gender in ways that are difficult to distinguish from...

Scarcity of Ideas and R&D Options: Use it, Lose it, or Bank it

Fri, 1 May 2009 00:00:00 +0000

We investigate optimal rewards in an R&D model where substitute ideas for innovation arrive to random recipients at random times. By foregoing investment in a current idea, society as a whole preserves an option to invest in a better idea for the same market niche, but with delay. Because successive ideas may occur to different people, there is a conflict between private and social optimality. We investigate the optimal policy when the social planner learns over time about the arrival rate of ideas, and when private recipients of ideas can bank their ideas for future use. We argue that private incentives to create socially valuable options can be achieved by giving higher rewards where "ideas are scarce."

Surviving the Titantic Disaster: Economic, Natural and Social Determinants

Fri, 1 May 2009 00:00:00 +0000

The sinking of the Titanic in April 1912 took the lives of 68 percent of the people aboard. Who survived? It was women and children who had a higher probability of being saved, not men. Likewise, people traveling in first class had a better chance of survival than those in second and third class. British passengers were more likely to perish than members of other nations. This extreme event represents a rare case of a well-documented life and death situation where social norms were enforced. This paper shows that economic analysis can account for human behavior in such situations.

Environmental Participation and Environmental Motivation

Fri, 1 May 2009 00:00:00 +0000

We explore whether environmental motivation affects environmental behavior by focusing on volunteering. The paper first introduces a theoretical model of volunteering in environmental organizations. In a next step, it tests the hypothesis working a large micro data set covering 32 countries from both Western and Eastern Europe using several different proxies to measure environmental motivation. As a robustness test we also explore the relationship at the macro level extending the number of countries investigated. Our results indicate a strong positive relationship between environmental motivation and individuals’ voluntary engagement in environmental organizations.

Explaining Soft Law

Fri, 13 Mar 2009 00:00:00 +0000

Explaining Soft Law

Seawalls Are Not Enough: Climate Change & U.S. Interests

Fri, 13 Mar 2009 00:00:00 +0000

Seawalls Are Not Enough: Climate Change & U.S. Interests

Hope and Despair in the Magic Kingdom: In Re Walt Disney Company Derivative Litigation

Fri, 2 May 2008 00:00:00 +0000

Hope and Despair in the Magic Kingdom: In Re Walt Disney Company Derivative Litigation

Independent Directors and Board Control in Venture Finance

Thu, 1 May 2008 00:00:00 +0000

The financial contracting literature treats control as an indivisible right held either by a firm’s entrepreneurs or by its investors. In contrast, data from VC-backed firms shows that board control is typically shared, with a third-party independent director holding the tie-breaking board seat (‘ID-arbitration’). In this article I use a bargaining game similar to final offer arbitration to model a firm’s choice of action under ID-arbitration. I show that ID-arbitration can reduce holdup by moderating each party’s ex post threat position. Consequently, ID-arbitration can lead to the efficient outcome in circumstances where alternative governance arrangements – entrepreneur control, investor control, or state-contingent control – are either unavailable or likely to lead to suboptimal results. This project has implications for the literature on financial contracting and the theory of the firm.

The Myth of International Delegation

Mon, 7 Apr 2008 00:00:00 +0000

There is a growing and misinformed sense in some quarters that the United States and other countries have engaged (and continue to engage) in delegations to international institution that involve a significant threat to domestic sovereignty. Concerns about such delegations come from academics (John Yoo: “Novel forms of international cooperation increasingly call for the transfer of rulemaking authority to international organizations”), prominent politicians (Bob Barr: “Nary a thought is given when international organizations, like the UN, attempt to enforce their myopic vision of a one-world government upon America, while trumping our Constitution in the process. Moreover, many in our own government willfully or ignorantly cede constitutionally guaranteed rights and freedoms to the international community;” Jesse Helms: “The American people see the UN aspiring to establish itself as the central authority of a new international order of global laws and global government.”);...

International Tribunals: A Rational Choice Analysis

Mon, 7 Apr 2008 00:00:00 +0000

In well-functioning domestic legal systems, courts provide a mechanism through which commitments and obligations are enforced. A party that fails to honor its obligations can be hauled before a court and sanctioned through seizure of person or property. The international arena also has courts or, to expand the category somewhat, tribunals. These institutions, however, lack the enforcement powers of domestic courts. How, then, do they work, and how might they work better or worse? The first objective of this Article is to establish that the role of the tribunal is to promote compliance with some underlying substantive legal rule. This simple yet often overlooked point provides a metric by which to measure the effectiveness of tribunals. But a tribunal does not operate in isolation. The use of a tribunal is one way to resolve a dispute, but reliance on diplomacy and other traditional tools of international relations is another. Furthermore, even if a case is filed with...

Keeping Imports Safe: A Proposal for Discriminatory Regulation of International Trade

Mon, 7 Apr 2008 00:00:00 +0000

The benefits of overseas outsourcing have come at a cost. Americans enjoy unprecedented levels of safety and security in the domestically-produced goods they use, food and drugs they ingest, and services they employ. Yet as U.S. firms increase the efficiency of their production, become more competitive globally, and offer better price-quality combinations to their customers by contracting with foreign companies for the production of goods and the provision of services, the mix of economic, legal, and societal forces that serve to protect consumers changes. Widespread revelations of Chinese-manufactured toxic toys and toothpaste, tainted food and drugs from abroad, and the failure of foreign call centers to protect the privacy of U.S. consumer data all illustrate the challenge for domestic governance. Though international trade in goods and services provides clear economic benefits, it can also frustrate consumer protection efforts. This paper provides a conceptual framework...

A Christmas Warning

Mon, 7 Apr 2008 00:00:00 +0000

Microsoft continues to profit at its users expense by creating incompatibilities. Think twice before asking Santa for a new Windows machine with Vista and Office 2007.

Voting as a Rational Choice

Mon, 7 Apr 2008 00:00:00 +0000

For voters with ‘social’ preferences, the expected utility of voting is approximately independent of the size of the electorate, suggesting that rational voter turnouts can be substantial even in large elections. Less important elections are predicted to have lower turnout, but a feedback mechanism keeps turnout at a reasonable level under a wide range of conditions. The main contributions of this paper are: (1) to show how, for an individual with both selfish and social preferences, the social preferences will dominate and make it rational for a typical person to vote even in large elections; (2) to show that rational socially motivated voting has a feedback mechanism that stabilizes turnout at reasonable levels (e.g.,50% of the electorate); (3) to link the rational social-utility model of voter turnout with survey findings on socially motivated vote choice.

Trans-border Bank Insolvency: A Generation Later

Mon, 24 Mar 2008 00:00:00 +0000

Hans-Jochem Lüer’s single most noted participation in the field of international transactions was his role in the Herstatt Bank litigation. Therefore, it seems fitting to honor him with a contribution to the subject of cross-border bank insolvency, especially considering that recent developments in the European Union and in the United States now implicate issues of federal-state relations that were not yet on the horizon a generation ago. This paper will focus in particular on the US side of the issue, even if it is clear that no purely national discussion can or should ignore the EU Directives in the field.

The Choice between Income and Consumption Taxes: A Primer

Tue, 13 Mar 2007 00:00:00 +0000

The Choice between Income and Consumption Taxes: A Primer

New Estimates of the Budget Outlook: Plus Ca Change, Plus C'est la Meme Chose

Tue, 13 Mar 2007 00:00:00 +0000

New Estimates of the Budget Outlook: Plus Ca Change, Plus C'est la Meme Chose

Tax Reform in the 21st Century

Tue, 13 Mar 2007 00:00:00 +0000

Tax Reform in the 21st Century

Dividend Taxes and Firm Valuation: New Evidence

Tue, 13 Mar 2007 00:00:00 +0000

Dividend Taxes and Firm Valuation: New Evidence

The U.S. Tax System in International Perspective: A Review of the 2006 Economic Report of the Presidentís Tax Chapter

Tue, 13 Mar 2007 00:00:00 +0000

The U.S. Tax System in International Perspective: A Review of the 2006 Economic Report of the Presidentís Tax Chapter

The Future of Capital Income Taxation

Thu, 22 Feb 2007 00:00:00 +0000

The Future of Capital Income Taxation

Why Have Corporate Tax Revenues Declined? Another Look

Thu, 22 Feb 2007 00:00:00 +0000

The relative constancy of nonfinancial corporate tax revenues as a share of U.S. GDP masks offsetting trends in the ratio of corporate profits to GDP (declining) and the average tax rate (increasing). The average tax rate rose steadily between 1996 and 2003, an increase largely attributable to the importance of tax losses. This rise casts some doubt on the role of tax planning activities in reducing corporate taxes. So, too, does the relative stability of the rate of profit (relative to net assets), which might be expected to have declined had the understatement of profits for tax purposes been increasing.

Notional Defined Contribution Pension Systems in a Stochastic Context: Design and Stability

Wed, 14 Feb 2007 00:00:00 +0000

Around the world, Pay-As-You-Go (PAYGO) public pension programs face serious long-term fiscal problems due primarily to actual and projected population aging, and most appear unsustainable as currently structured. Some have proposed the replacement of such plans with systems of fully funded private or personal Defined Contribution (DC) accounts, but the difficulties of transition to funded systems have limited their implementation. Recently, a new variety of public pension program known as ìNotional Defined Contributionî or ìNon-financial Defined Contributionî (NDC) has been created, with the objectives of addressing the fiscal instability of traditional plans and mimicking the haracteristics of funded DC plans while retaining PAYGO finance. Using different versions of the system recently adopted in Sweden, calibrated to US demographic and economic parameters, we evaluate the success of the NDC approach in achieving fiscal stability in a stochastic context. (In...

With or Against the People? The Impact of a Bottom-Up Approach on Tax Morale and the Shadow Economy

Tue, 23 Jan 2007 00:00:00 +0000

Policymakers often propose strict enforcement strategies to fight the shadow economy and to increase tax morale. However, there is also a bottom-up approach: decentralizing the political power to those who are close to the problems and give them a direct political say. This paper analyses the impact of direct democracy and local autonomy on tax morale and the size of the shadow economy. We use two different data sets on tax morale at the individual level (World Values Survey and International Social Survey Programme), and macro data of the size of the shadow economy to systematically analyse the effects of institutions in Switzerland, a country where participation rights and the degree of federalism vary across different cantons. The findings suggest that direct democratic rights and local autonomy, have a significantly positive effect on tax morale and the size of the shadow economy.

Social Captial and Relative Income Concerns: Evidence from 26 Countries

Mon, 22 Jan 2007 00:00:00 +0000

Research evidence on the impact of relative income position on individuals’ attitudes and behaviour is sorely lacking. Therefore, using the International Social Survey Programme 1998 data from 26 countries this paper investigates the impact of relative income on 14 measurements of social capital. We find support for a considerable deleterious positional concern effect of persons below the reference income. This effect is more sizeable by far than the beneficial impact of a relative income advantage. Most of the results indicate that such an effect is non-linear. Lastly, changing the reference group (regional versus national) produces no significant differences in the results.

Energy Regulation, Roll Call Votes and Regional Resources: Evidence from Russia

Mon, 22 Jan 2007 00:00:00 +0000

This paper investigates the relative impact of regional energy production on the legislative choices of Russian Duma deputies on energy regulation between 1994 and 2003. We apply Poole’s optimal classification method of roll call votes using an ordered probit model to explain energy law reform in the first decade of Russia’s democratic transition. Our goal is to analyze the relative importance of home energy on deputies’ behavior, controlling for other factors such as party affiliation, electoral mandate, committee membership and socio-demographic parameters. We observe that energy resource factors have a considerable effect on deputies’ voting behavior. On the other hand, we concurrently find that regional economic preferences are constrained by the public policy priorities of the federal center that continue to set the tone in energy law reform in post-Soviet Russia.

Tax Morale after the Reunification of Germany: Results from a Quasi-Natural Experiment

Mon, 22 Jan 2007 00:00:00 +0000

This paper provides a comparison of tax morale between inhabitants of East and West Germany in its post-reunification period, using three World Values Survey/European Values Survey waves between 1990 and 1999. German reunification is particularly interesting for the analysis of tax morale as it is close to a natural experiment. Many factors can be controlled because they are similar, as, e.g., a common language, similar education systems and a shared cultural and political history prior to the separation after the Second World War. As a consequence, an East-West comparison has a methodological advantage compared to cross-country studies. Our findings show higher tax morale in East than in West Germany. However, in only 9 years after reunification, tax morale values strongly converged, especially due to a strong change in the level of tax morale in the East. We suggest that this convergence in tax morale between East and West Germany, despite efforts of the federal government...

Shadow Economy, Tax Morale, Governance and Institutional Quality: A Panel Analysis

Mon, 22 Jan 2007 00:00:00 +0000

This paper analyses how governance or institutional quality and tax morale affect the shadow economy, using an international country panel and also within country data. The literature strongly emphasizes the quantitative importance of these factors to understand the level and changes of shadow economy. However, the limited number of investigations use cross-sectional country data with a relatively small number of observations, and hardly any paper has investigated tax morale and provides evidence using within country data. Using more than 25 proxies that measure governance and institutional quality we find strong support that its increase leads to a smaller shadow economy. Moreover, an increase in tax morale reduces the size of the shadow economy.

Power and Payouts in the Sale of Startups

Tue, 16 Jan 2007 00:00:00 +0000

Researchers have extensively analyzed VCs’ cash flow rights in venture-backed startups, including the right to be paid liquidation preferences ahead of common shareholders when the startup is sold. However, common shareholders have various ways of impeding these preference-triggering transactions, and may use their holdup power to capture part of the VCs’ preferences. Little is known about VCs’ cash flow outcomes: whether VCs receive their full liquidation preferences when startups are sold. Using a hand-collected dataset of VC-backed startups, we find that VCs frequently “carve out” part of their preferences for common shareholders. We also find that the expected value of these carveouts is larger when the common have more holdup power. For example, carveouts are more likely to occur and larger when VCs do not control the board and when the corporate law governing the firm gives common more leverage over the VCs. Our study highlights the distinct role of common shareholders...

The Accident Externality from Driving

Thu, 11 Jan 2007 00:00:00 +0000

We estimate auto accident externalities (more specifically insurance externalities) using panel data on state-average insurance premiums and loss costs. Externalities appear to be substantial in traffic-dense states: in California, for example, we find that the increase in traffic density from a typical additional driver increases total statewide insurance costs of other drivers by $1,725–$3,239 per year, depending on the model. High–traffic density states have large economically and statistically significant externalities in all specifications we check. In contrast, the accident externality per driver in low-traffic states appears quite small. On balance, accident externalities are so large that a correcting Pigouvian tax could raise $66 billion annually in California alone, more than all existing California state taxes during our study period, and over $220 billion per year nationally.

Informed Trading and False Signaling with Open Market Repurchases

Tue, 2 Jan 2007 00:00:00 +0000

Public companies in the United States and elsewhere increasingly use open market stock buybacks, rather than dividends, to distribute cash to shareholders. Academic commentators have emphasized the possible benefits of such repurchases for shareholders. However, little attention has been paid to their potential drawbacks. This Article explains that managers currently are able to use open market repurchases and misleading repurchase announcements to enrich themselves at public shareholders’ expense. Managers, aware their stock is underpriced, frequently use repurchases to indirectly buy stock for themselves at a bargain price. Managers have also been able to boost stock prices by announcing repurchase programs they did not intend to execute, perhaps to unload their own shares at a high price. Such bargain repurchases and inflated-price sales systematically transfer significant amounts of value from one set of shareholders (public investors) to another (managers). Low-price...

Agency Costs of Venture Capitalist Control in Startups

Tue, 2 Jan 2007 00:00:00 +0000

Venture capitalists investing in U.S. startups typically receive preferred stock and extensive control rights. Various explanations for each of these arrangements have been offered. However, scholars have failed to notice that these arrangements, when combined, often lead to a highly unusual corporate governance structure: one where preferred shareholders, rather than common shareholders, control the board and therefore the firm itself. The purpose of this Article is threefold: (1) to highlight the unusual governance structure of these VC-backed startups; (2) to show that preferred shareholder control can give rise to potentially large agency costs; and (3) to suggest legal reforms that may help VCs and entrepreneurs reduce these agency costs and improve corporate governance in startups.

Anti-Sharing as a Theory of Partnerships and Firms

Tue, 2 Jan 2007 00:00:00 +0000

Anti-Sharing may improve the efficiency of teams. The Anti-Sharer collects a fixed payment from all team members; he receives the actual output and pays out its value to them. However, if a team members assumes the role of an "internal" Anti-Sharer, he will be unproductive in equilibrium. Hence, internal Anti-Sharing fails to yield the first-best outcome. External Anti-sharing may induce the team members to choose efficient effort. The paper presents possible applications of Anti-Sharing: while internal Anti-Sharing may provide an explanation for the existence of senior (or managing) partners, external Anti-Sharing leads to a new theory of the incorporated firm.

The Misperception of Norms: The Psychology of Bias and the Economics of Equilibrium

Tue, 2 Jan 2007 00:00:00 +0000

Our perceptions of what other people do often affect what we do. In these situations, perceptual biases can affect what everyone does. By combing the psychology of bias and the economics of equilibrium, we construct a model to predict how individual biases affect aggregate behavior. Psychologists have found at least two systematic biases in the perception of social and legal norms. Empirical studies often find a general tendency to over-estimate how much other people violate social norms – a bias toward moral pessimism. We show that persistence of this bias causes more people to violate the norm than if the bias were corrected. In addition, this bias increases the probability that behavior will settle into a "bad" equilibrium with many wrongdoers, instead of settling into a “good” one with few wrongdoers. Empirical studies also find that a person often over-estimates how many other people act the same as he does – a bias towards social projection. We show that persistence...

Sharing and Anti-Sharing in Teams

Tue, 2 Jan 2007 00:00:00 +0000

Compared to budget-balanced Sharing contracts, Anti-Sharing may improve the efficiency of teams. The Anti-Sharer collects a fixed payment from all team members; he receives the actual output and pays out its value to them. If a team members becomes Anti-Sharer, he will be unproductive in equilibrium. Hence, internal Anti-Sharing fails to yield the first-best outcome. Anti-Sharing is more likely to yield a higher team profit than Sharing, the larger the team, the curvature of the production function, or the marginal effort cost. Sharing is more likely to be better, the greater the marginal product, the cross-partials of the production function, or the curvature of the effort cost.

The Deadweight Loss of Coupon Remedies for Price Overcharges

Fri, 22 Dec 2006 00:00:00 +0000

Consumers injured by price overcharges often are awarded coupons that can be used for a limited period of time to purchase the good at a price below that which prevails after the overcharge has been eliminated. Coupon remedies cause a deadweight loss by inducing excessive consumption by consumers with relatively low demand during the remedy period. The magnitude of the loss can be comparable to that caused by the price overcharge. As demand variability goes to zero, the deadweight loss from coupon remedies goes to zero. Eliminating the expiration date for the use of coupons does not eliminate the loss.

A Damage-Revelation Rationale for Coupon Remedies

Fri, 22 Dec 2006 00:00:00 +0000

This article studies optimal remedies in a setting in which damages vary among plaintiffs and are difficult to determine. We show that giving plaintiffs a choice between coupons to purchase units of the defendant’s product at a discount and cash — a coupon-cash remedy — is superior to cash alone. The optimal coupon-cash remedy offers a cash amount that is less than the value of the coupons to plaintiffs who suffer relatively high harm. Such a remedy induces these plaintiffs to choose coupons, and plaintiffs who suffer relatively low harm to choose cash. Sorting plaintiffs in this way leads to better deterrence because the costs borne by defendants (the cash payments and the cost of providing coupons) more closely approximate the harms that they have caused.

The Pricing of Academic Journals

Fri, 22 Dec 2006 00:00:00 +0000

In this paper we investigate the claim that academic journals are too expensive. We estimate library demand for academic journals and ask if short run profit maximization by publishers can explain observed prices. Libraries purchase a portfolio of journals so to estimate demand we extend the standard discrete choice model, and estimation methods, to allow for a choice consisting of a subset of a larger set of journals. Unlike the discrete choice model, the model allows for both positive and negative cross-price effects. We estimate the model using library holdings data and find that on average prices in the industry are lower than what static pricing models predict. Furthermore, we simulate the effects of mergers and find that the likely unilateral effect of a merger is to lower prices.

Effects of Tax Morale on Tax Compliance: Experimental and Survey Evidence

Wed, 13 Dec 2006 00:00:00 +0000

There is considerable evidence that enforcement efforts can increase tax compliance. However, there must be other forces at work because observed compliance levels cannot be fully explained by the level of enforcement actions typical of most tax authorities. Further, there are observed differences, not related to enforcement effort, in the levels of compliance across countries and cultures. To fully understand differences in compliance behavior across cultures one needs to understand differences in tax administration and citizen attitudes toward governments. The working hypothesis is that cross-cultural differences in behavior have foundations in these institutions. Tax compliance is a complex behavioral issue and its investigation requires the use of a variety of methods and data sources. Results from laboratory experiments conducted in different countries demonstrate that observed differences in tax compliance levels can be explained by differences in the fairness...

Public Attitudes toward Corruption and Tax Evasion: Investigating the role of gender over time

Wed, 13 Dec 2006 00:00:00 +0000

In recent years the topics of illegal activities such as corruption or tax evasion have attracted a great deal of attention. However, there is still a lack of substantial empirical evidence about the determinants of compliance. The aim of this paper is to investigate empirically whether women are more willing to be compliant than men and whether we observe (among women and in general) differences in attitudes among similar age groups in different time periods (cohort effect) or changing attitudes of the same cohorts over time (age effect) using data from eight Western European countries from the World Values Survey and the European Values Survey that span the period from 1981 to 1999. The results reveal higher willingness to comply among women and an age rather than a cohort effect.

The Determinants of Political Discussion: How important are audit courts and local autonomy?

Wed, 13 Dec 2006 00:00:00 +0000

The intention of this paper is to analyse how audit courts and local autonomy affect political discussion, controlling in a multivariate analysis for a broad variety of potential factors focusing on Switzerland, due to its variety of audit court competences and its strong decentralised structure. With data from the World Values Survey 1995-1997 (Swiss data 1996) evidence has been found that a higher audit court competence and a lower level of centralization is correlated with a higher level of political discussion. Thus, the results in Switzerland suggest that such institutions help improve citizens’ willingness to acquire information costs and discuss political matters.

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