determinants and welfare of the environmental regulatory stringency before and after regulatory capture abstract the enforcement of environmental regulation relies on the willingness and capacity of the regulator the willingness could be disabled by regulatory capture which is widespread and that how many public resources should be invested in environmental regulation is always debatable we develop a 3 stage game to analyze the nonlinear effects and mechanism of regulatory capture and regulatory capacity on environmental regulatory welfare our model suggests that the importance of the regional economy to government the firm size and the customer s disutility on pollution emissions will influence the possibility of regulatory capture furthermore the dynamic research suggests that when the regulatory capture is controlled with the improvement of governmental regulatory capacity the regulator s and customer s welfare continues to grow until the capacity achieves a threshold beyond the threshold the regulatory capacity will be redundant

a model of forum shopping owners of intellectual property or mere sponsors of an idea e g authors security issuers sponsors of standards resort to more or less independent certifiers to persuade potential users buyers or adopters of the worth of their property or idea we analyze the sponsor s choices ofcertifier and design social preferences regarding these choices and the impacts thereon of multiple categories of users of a downstream presence of the sponsor and of certifier market power finally we study strategic forum shopping by sponsors of competing ideas

applications of behavioural economics to tax evasion the paper reviews recent models that have applied the techniques of behavioural economics to the analysis of the tax compliance choice of an individual taxpayer the construction of these models is motivated by the failure of the yitzhaki version of the allingham sandmo model to predict correctly the proportion of taxpayers who will evade and the effect of an increase in the tax rate upon the chosen level of evasion recent approaches have applied non expected utility theory to the compliance decision and have addressed social interaction the models we describe are able to match the observed extent of evasion and correctly predict the tax effect but do not have the parsimony or precision of the yitzhaki model

the welfare cost of means testing pensioner participation in income support we estimate parametric and semi parametric binary choice models of benefit take up by british pensioners and use a revealed preference argument to infer the cash equivalent value of disutility arising from stigma or complexity of the claims process these implicit costs turn out to be relatively small averaging about 3 4 per week across income support recipients using the foster greer thorbecke measure of poverty among pensioners we find that allowing for implicit claim costs incurred by benefit recipients raises the measured degree of poverty by not more than 13 copyright 2007 john wiley sons ltd

an econometric analysis of income tax evasion and its detection this article presents an econometric analysis of income tax evasion and its detection based on individual level data drawn from the internal revenue service 1982 and 1985 taxpayer compliance measurement programs i specify a model consisting of two equations the first measures the extent of evasion the second the fraction of evasion detected the empirical analysis explores the effects of income the marginal tax rate and various socioeconomic characteristics on filer evasion behavior and it assesses the variability in detection rates among irs examiners finally i use the empirical estimates to construct new estimates of the income tax gap the new estimates are very close to the previous irs estimates

credibility and policy convergence in a two party system with rational voters the traditional approach to modeling political parties behavior based upon the contribution of anthony downs 1957 assumes that the parties unique objective is to win elections thus they maximize their popularity the crucial implication of this assumption for a two party system is that if the two parties have the same information about voters preferences full convergence of policies results from electoral competition this is the crucial implication of the median voter theorem more generally it may be argued that different parties are motivated differently because they represent different constituencies parties may not care only about winning elections per se but also about the quality of the policies resulting from an election in this case the candidates of the two parties view winning an election not only as a goal per se but also as a means of implementing a better policy for their respective constituencies this paper shows that electoral competitions imply dynamic inconsistency if the voters are modeled as rational and forwardlooking agents and parties do not care exclusively about being elected but also about which policy to implement once elected the dynamic inconsistency arises as follows the parties have an incentive to announce convergent platforms to increase their chances of election however if the elected party is not committed to its electoral platform it has an incentive to follow its most preferred policy rather than the policy announced in its platform if voters are rational they account for this incentive thus in general in a one shot electoral game the only timeconsistent equilibrium is one in which no convergence is possible the two parties follow their most preferred policies and the voters rationally expect this outcome full convergence of parties platforms results only as a limiting case when the parties are completely indifferent with respect to the quality of the policies resulting from the election thus these results differ from the existing literature on ideologically motivated politicians for instance donald wittman 1977 1983 randall calvert 1985 which implicitly assumes the possibility of binding commitments to electoral platforms complete or partial policy convergence can be the outcome of political competition if the interaction between the parties and the voters is modeled as an infinitely repeated game in fact if the candidates have concave objective functions the welfare maximizing policy rule implies a complete convergence of parties policies however this cooperative and agreed upon policy may or may not be sustainable as a subgame perfect equilibrium depending on parameter values in particular it depends on the discount rates of the two parties the degree of polarization of their preferences and the relative popu graduate school of industrial administration carnegie mellon university pittsburgh pa 15213 and national bureau of economic research cambridge ma 02138 this paper is based upon a chapter of my unpublished doctoral dissertation at harvard university i am greatly indebted to jeffrey sachs for directing my attention toward these issues and for many conversations i also wish to thank andrew abel dilip abreu olivier blanchard ramon caminal andrew caplin alex cukierman morris fiorina benjamin friedman herschel grossman howard rosenthal and the referees for very useful comments the responsibilitv af anv n mtnkieis af calrirp nfnlv mine the result of policy convergence in a two party system is more general than the median voter theorem for discussions of convergence results not at the median see john ledyard 1984 peter coughlin 1984 coughlin and shmuel nitzan 1981 melvin hinich 1977 for earlier work on spatial competition see richard mckelvey 1975 hinich ledyard and peter ordeshook 1972 1973 and the references quoted therein the present paper focuses on the result of convergence rather than on the median voter theorem per se

voting blocs party discipline and party formation abstract i study the strategic incentives to coordinate votes in an assembly coalitions form voting blocs acting as single players and affecting the policy outcome in an assembly with two exogenous parties i show how the incentives to accept party discipline depend on the types of the agents the sizes of the parties and the rules the blocs use to aggregate preferences in a game of fully endogenous party formation i find sufficient conditions for the existence of equilibria with one bloc two blocs and multiple blocs

voting behavior and information aggregation in elections with private information we analyze two candidate elections in which voters are uncertain about the realization of a state variable that affects the utility of all voters each voter has noisy private information about the state variable we show that the fraction of voters whose vote depends on their private information goes to zero as the size of the electorate goes to infinity nevertheless elections fully aggregate information in the sense that the chosen candidate would not change if all private information were common knowledge equilibrium voting behavior is to a large extent determined by the electoral rule i e if a candidate is required to get at least x percent of the vote in order to win the election then in equilibrium this candidate gets very close to x percent of the vote with probability close to one finally if the distribution from which preferences are drawn is uncertain then elections will generally not satisfy full information equivalence and the fraction of voters who take informative action does not converge to zero

individual morality and reputation costs as deterrents to tax evasion abstract empirical evidence suggests some taxpayers never evade evasion increases with the tax rate and evasion decisions are interdependent these findings are not easily explained by the existing theory which models evasion as an independently made amoral gamble this paper uses nonpecuniary costs of evasion to reconcile theory with evidence once individuals are assumed to differ by an honesty characteristic taxpayers dichotomise into groups the more honest of which responds to a tax change as the evidence suggests a further extension is to introduce an endogenous reputation cost this suggests a positive relationship between the number of evaders and the tax rate

information and strategic political polarisation we develop a model of electoral competition in which two opportunistic candidates select their policy position and invest in quality policy positions are observed and during the campaign the press reveals some information about quality we demonstrate that when information is imperfect the blackdowns median voter theorem fails to hold for intermediate information levels the unique equilibrium is such that candidates propose policies different from the median voter s bliss point by contrast convergence to the median occurs when quality is almost always or almost never revealed we also show that a profit maximising press may collect more information than socially optimal during the 1995 electoral campaign in belgium the vld a traditionally right wing

why do people pay taxes prospect theory versus expected utility theory abstract using actual probabilities of audit and penalty rates the return on evasion is 91 98 so why do not most of us evade existing analysis based on expected utility theory eut is unable to explain this furthermore and contrary to intuition and the bulk of evidence eut predicts that evasion should be decreasing in the tax rate yitzhaki puzzle we apply tversky and kahneman s tversky a kahneman d 1992 advances in prospect theory cumulative representation of uncertainty journal of risk and uncertainty 5 297 323 cumulative prospect theory to tax evasion we show that prospect theory provides a much more satisfactory account of tax evasion including an explanation of the yitzhaki puzzle this also provides independent confirmation of prospect theory

understanding welfare stigma taxpayer resentment and statistical discrimination abstract welfare stigma is widely regarded to be of central importance in understanding the impact of welfare programs in their goal of alleviating poverty it affects both the decision to take up benefits and the well being of those who actually do this paper develops alternative models of the determinants of welfare stigma we identify two views a statistical discrimination approach and a taxpayer resentment view we discuss how each may be formalized and derive their implications we then examine what they imply about the relationship between stigma and program design

certifying new technologies we study the role of standard setting organization ssos in the adoption of standards the way the sso balances the interests of sponsor and users is key to its ability to certify the technology proximity to users builds trust in the endorsement but may be unattractive to technology sponsors in a static context we show that the sso is an effective certifier if and only if it puts enough weight on users interests we then tackle the more challenging problem of sso certification in a dynamic setting in which new information will accrue in the future and user choices are irreversible the sso and the users must then both take a dynamic perspective and contemplate the possibility of a second chance that may arise for the standard a key insight is the possibility of multiple self fulfilling expectations it is possible to have an equilibrium with no second chance a lenient sso endorsement policy and high stigma from early rejection it is also possible to have an equilibrium with a second chance a selective sso endorsement policy and low stigma from early rejection finally and in both the static and the dynamic setups we ask whether the sso is too inclined to turn down or to accept the standard from a social viewpoint jel d71 d82 l15 o31

developments in non expected utility theory the hunt for a descriptive theory of choice under risk this article reviews recent developments in the economic theory of individual decision making under risk since the 1950s it has been known that individual choices violate the standard model of expected utility in predictable ways considerable research effort has now been devoted to the project of developing a superior descriptive model following an overview of non expected utility theories which distinguishes between conventional and non conventional approaches the paper seeks to assess these alternative models in terms of empirical success using laboratory and field data and theoretical usefulness the closing sections reflect on some new directions emerging in this literature

tax evasion and orders of risk aversion abstract the classic allingham and sandmo s journal of public economics 1 1972 323 338 portfolio choice approach to income tax evasion has been increasingly criticised because it requires an excess degree of risk aversion to explain the observed rate of tax compliance in this paper we argue that there may not necessarily be excess risk aversion and that the evidence can be explained by the distinction between orders of risk aversion as defined by segal and spivak journal of economic theory 51 1990 111 125 and considered in regard to the same problem of anomalous excess risk aversion in financial and insurance markets

costs of distrust the virtuous cycle of tax compliance in jordan tax compliance has been extensively researched yet the classic question why do people pay taxes remains unanswered in jordan tax evasion is widespread the state and citizens have been trapped in a continuous hide and seek game which has taken the form of a virtuous cycle this paper investigates tax evasion along with the most noticeable features of the jordanian tax system it also highlights how the virtuous cycle of tax evasion has been established and what could possibly be a way out of it we argue that sociocultural values are the most prominent cause for tax evasion that is the procedures of state formation and functionality in jordan have created mutual distrust between the state and its citizens having been raised in a community characterized by deep distrust tax evasion is no longer considered immoral by substantial numbers of the jordanian population we argue that successive governments need to create a high trust based culture and formulate strategies that serve to acquire normative ethical values in order to enhance voluntary compliance the way to accomplish this necessity is through enforcing the state s transparency and accountability the taxation system needs to concentrate on income tax rather than raise tax rates on essential commodities to collect substantial tax revenues thus further reform of the taxation system along with a reduction in tax incentives need to be considered moreover lowering the exceptionally high personal income tax threshold would bring jordan in line with its peers expand the base and introduce more progressivity there would also be a scope to introduce a minimum tax based on sales as a tool to address tax evasion

parties as political intermediaries this paper argues that parties regulate competition among like minded factions so as to enhance reputation building by and voter trust in the politicians standing for a given cause while intra and interparty competition contributes to keeping politicians on their toes unbridled competition may encourage politicians to challenge good platforms and to wage competition along socially suboptimal dimensions for example by privileging form over content the paper builds a simple model of intraparty competition and studies whether various hierarchical or democratic party institutions constitute an efe cient form of party governance the paper shows that intraparty disagreements when they occur hurt the party s position in the general election but that their possibility enhances party image and that parties must be able to avoid behind the scene allocations of portfolios and spoils in order to be credible last it analyzes the impact of political polarization and interparty competition on the choice of party governance

the swing voter s curse the authors analyze two candidate elections in which some voters are uncertain about the realization of a state variable that affects the utility of all voters they demonstrate the existence of a swing voter s curse less informed indifferent voters strictly prefer to abstain rather than vote for either candidate even when voting is costless the swing voter s curse leads to the equilibrium result that a substantial fraction of the electorate will abstain even though all abstainers strictly prefer voting for one candidate over voting for another copyright 1996 by american economic association

party governance and ideological bias abstract informed opinions are essential to a good functioning of democratic institutions political intermediaries such as parties make up the free riding voters informational deficit public opinion and voting outcomes are shaped by those parties whom the voters trust the credibility of parties is fashioned by their internal organization the paper investigates one aspect of party governance namely the allocation of control rights over platform design the party s leadership either selects a platform or simply recommends a platform for adoption by the rank and file under the latter democratic institution the leadership has no formal authority but for informational and procedural reasons may still have substantial real control over the final platform depending on the congruence between leadership and rank and file in particular the rank and file is generally more concerned with the ideological content of the platform than the leadership who is motivated by the benefits from electoral office the paper argues that in centrist parties the high congruence of interest between the rank and file and office seekers leads to systematic rubberstamping of the leadership s electoral platforms the resulting weak internal control mechanism hurts party credibility