Journal of Public Economic Theory

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  • On public opinion polls and voters' turnout

    This paper studies the effects that the revelation of information on the electorate's preferences has on voters' turnout. The experimental data show that closeness in the division of preferences induces a significant increase in turnout. Moreover, for closely divided electorates (and only for these electorates), the provision of information significantly raises the participation of subjects supporting the slightly larger team relative to the smaller team. We show that the heterogeneous effect of information on the participation of subjects in different teams is driven by the subjects' (incorrect) beliefs of casting a pivotal vote. Simply put, subjects overestimate the probability of casting a pivotal vote when they belong to the team with a slight majority, and choose the strategy that maximizes their utility based on their inflated probability assessment. Empirical evidence on gubernatorial elections in the United States between 1990 and 2005 is consistent with our main experimental result. Namely, we observe that the difference in the actual vote tally between the party leading according to the polls and the other party is larger than the one predicted by the polls only in closely divided electorates. We provide a behavioral model that explains the main findings of our experimental and empirical analyses.

  • The technological determinants of long‐run inequality

    I explore the effect of skill‐biased technological change and unbiased technological progress on long‐run inequality using a theoretical model in which the supply of skilled and unskilled workers is endogenous. The main assumption of the model is that young agents can finance their education and become skilled workers by borrowing against their future income on an imperfect credit market. I show that whenever the rate of unbiased technological progress is sufficiently high there is no steady‐state inequality, independent of the degree of skill bias. If instead the rate of unbiased technological progress is low, then the long‐run skill premium increases with the technological skill bias. Therefore, similarly to the short run, in the long run higher technological skill bias may cause higher inequality. However, contrary to the short run, in the long run unbiased technological progress is more important than technological skill bias in determining inequality. I also discuss how the efficiency of the educational technology and the degree of financial development affect long‐run inequality.

  • The most ordinally egalitarian of random voting rules

    Aziz and Stursberg propose an “Egalitarian Simultaneous Reservation” rule (ESR), a generalization of Serial rule, one of the most discussed mechanisms in the random assignment problem, to the more general random social choice domain. This article provides an alternative definition, or characterization, of ESR as the unique most ordinally egalitarian one. Specifically, given a lottery p over alternatives, for each agent i the author considers the total probability share in p of objects from her first k indifference classes. ESR is shown to be the unique one which leximin maximizes the vector of all such shares (calculated for all i, k). Serial rule is known to be characterized by the same property. Thus, the author provides an alternative way to show that ESR, indeed, coincides with Serial rule on the assignment domain. Moreover, since both rules are defined as the unique most ordinally egalitarian ones, the result shows that ESR is “the right way” to think about generalizing Serial rule.

  • Illiquid life annuities

    In this paper, we consider illiquid life annuity contracts and show that they may be preferred to those illustrated by Yaari. In an overlapping generations economy, liquid life annuities are demanded only if the equilibrium is dynamically inefficient. However, an equilibrium displaying a positive demand for illiquid life annuities is indeed efficient. In this latter case, the welfare at steady state is larger if illiquid life annuity contracts are available.

  • Prices versus quantities in the presence of a second, unpriced, externality

    This paper analyzes whether the presence of a second unregulated externality influences the choice between a price and a quantity instrument to address an externality. The author studies a situation in which two goods jointly generate an externality but only one of them is regulated. The two instruments differ because of the presence of uncertainty regarding the private value of the two goods. To ignore the unregulated good and apply Weitzman's classical result on the comparison of the slopes of marginal benefit and cost could be misleading because of the randomness of the unregulated good's quantity. Beside the relative slope of the marginal damage, the substitutability and the distribution of shocks play a role in the comparison. If there is a “cocktail effect” and the regulated and unregulated goods' quantities are negatively correlated, which occurs if they are substitutes, this reinforces the appeal of a price instrument. Furthermore, if the two goods are weak substitutes with correlated demands, the variance of the quantity of the unregulated good is larger under a quota than a tax, which further reinforces the appeal of the tax instrument.

  • Information transmission during the trial: The role of punitive damages and legal costs

    This paper studies an incomplete information model in which a preventable accident occurred. The judge determining punitive damages observes the firm's (defendant) investment decisions, but is uninformed about the firm's experience adopting safety measures. Our model allows firms to file an appeal if the judge's verdict is incorrect, which the judge may accept or reject. We identify under which conditions a separating equilibrium exists where the firm's investment decisions signal its type to the judge, who responds with a correct verdict, thus avoiding future appeals. Our paper also finds conditions under which a pooling equilibrium exists whereby the firm's investment in precaution conceals its type from the judge, who can respond with an incorrect verdict thus giving rise to appeals. Furthermore, we show that the separating equilibrium is more likely to arise if the percentage of revenue that defendants are required to pay in punitive damages decreases, if the punitive‐to‐compensatory ratio increases, and if the legal cost of filing an appeal increases.

  • On the equilibrium and welfare consequences of getting ahead of the Smiths

    This paper provides an analysis of the social consequences of people seeking to get ahead of the Smiths. All individuals attempt to reach a higher rank than the Smiths, including the Smiths themselves. This attitude gives rise to an equilibrium in which all individuals have equal utilities but unequal (gross) incomes. Due to a rat‐race effect, individuals devote too much energy to climbing the social scale. However, laissez‐faire equilibrium is an equal‐utility constrained social optimum. Conversely, a utilitarian social planner would not choose utility equality. Unexpectedly, this social ambition theory fairly well accounts for empirical intermediate wage inequality.

  • Does transparency reduce political corruption?

    Does a better monitoring of officials' actions (transparency) lower the incidence of corruption? Using a common agency game with imperfect information, we show that the answer depends on the measure of corruption that one uses. More transparency lowers the prevalence of corruption but raises the average bribe as it motivates the corruptor to bid more aggressively for the agent's favor. We show that transparency affects the prevalence of corruption at the margin through a competitive effect and an efficiency effect.

  • Taxation of firms with unknown mobility

    We analyze optimal business tax policy when some firms are able to escape taxation by moving abroad. In contrast to the existing literature, we assume that the true number of mobile firms is ex ante unknown. While the government may learn from the firms' location responses to past tax rate changes, firms may anticipate this and adjust their choices accordingly. We find that incomplete information on mobility substantially affects the properties and the implications of equilibrium policy choices. First, the government may find it optimal to set a tax rate that triggers partial firm migration but full revelation of the true number of mobile firms. Second, we show that, if the firms' outside option is attractive (i.e., relocation cost and foreign tax rates are low), expected tax rates and expected firm migration are higher if the degree of mobility is unknown. Third, there is a positive value of learning, i.e., commitment on future tax rates cannot increase the government's expected revenue. However, if the government can commit to a rule‐based learning mechanism, i.e., credibly tie its future tax policy to present policy outcomes, it may obtain a Pareto improvement.

Featured documents

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    Systematic differences in the incidence of corruption between countries can be explained by models of coordination failure that suggest that corruption can only be reduced by a “big push” across an entire economy. However, there is significant evidence that corruption is often sustained as an...

  • Information transmission during the trial: The role of punitive damages and legal costs

    This paper studies an incomplete information model in which a preventable accident occurred. The judge determining punitive damages observes the firm's (defendant) investment decisions, but is uninformed about the firm's experience adopting safety measures. Our model allows firms to file an appeal...

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