evasion and time consistency in the taxation of capital income evasion and time inconsistency have been prominent concerns in discussions of capital income taxation both theoretical and applied this paper establishes a link between them suggesting a potentially useful role for evasion additional to those previously identified by committing to relatively lax enforcement the government may be able to alleviate the welfare loss implied by its inability to commit to the tax rate the scope for this role proves strikingly wide it is optimal for the government to facilitate the evasion of the capital income taxes that it chooses to impose whenever the time consistent tax rate exceeds that which would be optimal if the government could commit to it copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

integrating market alternatives into the economic theory of optimal deterrence i introduction standard models of the public enforcement of law are tractable and have yielded numerous useful insights into how penalties ought to be set 1 several features of the legal system however have proven difficult to explain within the canonical framework for example it struggles to explain why sanctions increase in one s criminal history in a simple and intuitive way and the literature to date has proposed no explanation of why necessity can be a defense for some crimes in particular a partial defense furthermore welfare analysis in the standard framework is based on an often unstated assumption that penalties are being used to solve a missing markets problem which implies that some amount of crime is efficient even from a first best standpoint this result appears counterintuitive for many crimes in particular the most heinous crimes such as rape and has been the source of much controversy in the literature in this article we reconcile the standard theory with these facts we focus on the extensively employed assumption that potential criminals face a binary choice they can either attempt to obtain some benefit or good by committing a proscribed act or do nothing we show that adding the option of achieving their ends via legitimate means to the choice set of potential criminals extends the explanatory power of the canonical approach with regards to these problematic issues our approach is theoretically attractive as the idea that criminal activity represents a means by which criminals achieve their objectives is inherent to the rational choice approach to crime it is natural then to suppose that in many instances criminals have the option of attaining their objectives via legitimate voluntary channels furthermore while it is clearly the case that legitimate alternatives exist for some property crimes such as theft we argue that this assumption is reasonable for a wide range of criminal activities under the canonical approach to optimal deterrence any increase in the penalty associated with criminal activity reduces the opportunities for engaging in involuntary or criminal transactions this implies a loss of utility on the part of potential offenders consequently optimal penalties in this setting are ones that induce efficient crimes that is ones for which the benefits to the criminals outweigh the social harm specifically at the optimum sanctions are set so that the potential criminal internalizes the costs of his or her actions much as in the literature examining tort law we show that when potential criminals have the option of achieving their ends through voluntary exchange maximization of a utilitarian welfare function is equivalent to minimizing the costs of crime which consist of the harm to victims plus enforcement costs in the presence of an option for voluntary trade increasing the penalties associated with crime does not necessarily create a loss of utility instead an increase in the criminal sanction serves to shift activity away from criminal activity in favor of voluntary transactions this means that the optimal penalties can and should be set so as to minimize the harm caused by crime indeed and in stark contrast to the canonical framework in the absence of costs to imposing a sanction the optimal penalty would be one which deters all crime the presence of a voluntary alternative therefore suggests a role for the legal system different from the standard torts logic to encourage the use of existing markets however formal or informal they may be over criminal activity the idea that criminal sanctions should be set so as to encourage voluntary trade was first proposed by posner 1985 2 who associates this function with the criminal justice system but the idea has been considered only rarely in the subsequent literature cooter and ulen 2008 also take this view arguing that society is in general better off when goods are acquired through voluntary exchange p

on the effective use of stigma as a crime deterrent abstract stigma affects convicted offenders if employers reduce their wage current research considers this kind of informal sanctioning as an effective means for reducing crime and proposes its fostering by the government in this article i first show that increasing stigma may even enhance crime while stigma enhances deterrence of an unconvicted offender it may drive a stigmatized ex convict towards recidivism secondly i provide a solution for guaranteeing stigma s effectiveness notably a harsh er punishment for repeat offenders is required finally with the theoretical analysis as a background stigmatization policies pursued in the states switzerland and spain are compared

the good the bad and the regulator an experimental test of two conditional audit schemes conditional audit rules are designed to achieve regulatory compliance with fewer inspections than required by random auditing a regulator places individuals into audit pools that differ in probability of audit or severity of fine and species transition rules between pools future pool assignment is conditional on current audit results we conduct an experiment to compare two specific schemes harrington s past compliance targeting and friesen s optimal targeting against random auditing we find a production possibility frontier between compliance and minimizing inspections optimal targeting generates the lowest inspection rates as predicted but random auditing the highest compliance past compliance targeting is intermediate

legal principles in antitrust enforcement we study antitrust enforcement to channel price fixing incentives of cartels through setting fine schedules and detection levels fines obey legal principles punishments fit the crime proportionality bankruptcy considerations and minimum fines bankruptcy considerations limit maximum fines ensure abnormal cartel profits and impose a challenge for optimal antitrust enforcement we derive the fine schedule and detection level that are constrained optimal under legal principles and sustainability of cartel prices this fine schedule lies below the maximum fine makes collusion on lower prices more attractive than on higher prices and hence relates to marginal deterrence literature this article is protected by copyright all rights reserved

organic labelling private label and u s household demand for fluid milk abstractthe u s fluid milk market has been experiencing two trends in the recent decade the fast growth of private label milk and organic milk using the data from nielsen homescan panel we estimate a censored demand system to study the demand relations among types of milk differentiated by brand types and organic status we find that sociodemographic factors still play important roles in household choice of milk types and fluid milk as a whole is an inferior good moreover as income increases households are more likely to shift from buying conventional milk to organic milk and from private label conventional milk to branded conventional milk as indicated by the asymmetric cross price elasticities corresponding implications for milk producers and marketers are discussed

graduated punishments in public good games a host of social situations feature graduated punishments we explain this phenomenon by studying a repeated public good game in which a social planner imperfectly monitors agents to detect shirkers agents cost of contributing is private information and administering punishments is costly a low punishment today imperfectly sorts agents by type only low cost agents contribute the planner uses this information optimally punishing tomorrow s alleged repeat shirkers harsher than rst time shirkers the threat of becoming branded as repeat oender allows the planner to use a very mild punishment for rst time shirkers attenuating the costs associated with administering punishments graduated punishments are consequently socially optimal as long as the population is not too homogeneous

can punishment generate specific deterrence without updating analysis of a stated choice scenario this study explores the specific deterrence generated by punishment in the context of regulatory violations with a focus on the distinction between upward revisions to future punishment parameters likelihood and severity and the experience of being penalized in order to avoid the pitfalls of empirically analyzing actual choices made by regulated entities e g measuring entities beliefs regarding the likelihood and size of future penalties our study examines behavior associated with a stated choice scenario presented within a survey distributed to the environmental managers of facilities regulated under the us clean water act this choice of respondents strengthens the external validity of our empirical results based on a variety of statistical methods our empirical results strongly and robustly reject the standard hypothesis that specific deterrence stems solely from upward revisions to punishment parameters while supporting the alternative hypothesis of experiential deterrence whereby facilities focus on recent experiences to shape their compliance behavior

explaining escalating prices and fines a unified approach abstract this paper provides an explanation for escalating prices and fines based on a unified analytical framework that nests monopoly pricing and optimal law enforcement we show that escalation emerges as an optimal outcome if the principal i lacks commitment ability and ii gives less than full weight to agent benefits escalation is driven by decreasing transfers for non active agents rather than increasing transfers for active agents some forward looking agents then strategically delay their activity which drives a wedge between the optimal static transfer and the benefit of an indifferent agent this wedge is the source of escalation

measuring and testing advertising induced rotation in the demand curve advertising can rotate the demand curve if it changes the dispersion of consumers valuations we provide an elasticity form measure of the advertising induced demand curve rotation in five demand models and test for its presence in the us nonalcoholic beverage market the almost ideal demand system aids model reveals that doubling advertising spending rotates the demand curves clockwise for milk and coffee and tea with associated slope changes of 7 and 12 soft drink advertising rotates its demand curve counterclockwise our policy suggestion is that milk and soft drink firms time advertising to coincide with high and low price periods respectively

regulatory dealing revisiting the harrington paradox abstract despite the fact that i when the epa observes regulatory violations it rarely pursues the violator and ii the expected penalty faced by a violator who is pursued is small compared to the cost of compliance it is still the case that iii firms comply a significant portion of the time winston harrington harrington w 1988 enforcement leverage when penalties are restricted journal of public economics 37 29 53 provides a dynamic model consistent with this apparent paradox we offer an alternative rationalisation in a model of regulatory dealing in which the agency uses tolerance in some contexts to induce increased compliance in others the observed tolerance of the epa to non compliance may be a strategic response by the agency to a difficult enforcement environment rather than evidence that it has gone soft on pollution or been captured by industry interests we use the model to consider the impact of the growing trend towards citizen suits and ngo enforcement of regulation arriving at some unconventional conclusions we argue that the model is consistent with existing empirical analyses

moral hazard and merit rating over time an analysis of optimal intertemporal wage structures a fundamental problem that has been the focus of much work in agency theory has been the design of contracts to provide insurance to risk averse agents and to elicit appropriate levels of effort in the context of insurance the problem is viewed as one of moral hazard whereby the insured agent will reduce the level of his precautions to prevent an accident if he is insured against the adverse outcome in the labor market context the problem is one of providing effective work incentives while at the same time promoting the risk sharing element of contracts the overall structure of the analyses is quite similar whether or not the focus is on the insurance market the labor market or principal agent problems in general for concreteness this paper addresses the labor market incentives problem the labor market problem is complicated by the firm s inability to observe the worker s ability and effort and also by stochastic elements that impede a firm s attempts to make more indirect inferences using output to assess the worker s productivity related efforts this combination of uncertainty and the need to create incentives takes on added importance in the case of workers who are risk averse the presence of risk aversion often mitigates the emphasis the firm can place on incentive creation as there is a desire on the part of workers to have stable income streams complete equalization of one s income level across states to promote insurance will however remove the differential rewards needed to provide an incentive for individuals to expend effort this inevitable tradeoff between the work incentive and insurance function of contracts has been studied in detail for single period contracts the focus of my analysis here will be on how these influences affect the multi peiiod wage structure although there has been research on the multi period incentives problem2 and on the role of moral hazard in multiperiod contexts 3 there is no literature on the optimal design of a merit rating system over

measurement error and state dependent pollution control enforcement abstract a two group model of state dependent enforcement is applied to identical firms which minimize the expected present value of costs and fines measurement error affects the probabilities of transitions between groups and the receipt of fines it is shown that state dependent enforcement can reduce social cost below the level attainable with static enforcement and that differentiation in both monitoring probabilities and standards may be optimal however setting fines for both groups at the maximum is likely to be optimal comparisons between models and alternative model interpretations are offered

enforcement leverage when penalties are restricted a reconsideration under asymmetric information abstract harrington harrington w 1988 enforcement leverage when penalties are restricted journal of public economics 37 29 53 offers an explanation for how relatively high compliance rates might co exist with low expected fines his results are highly dependent on the assumptions that all firms are identical and their compliance costs are known this paper shows that harrington s results are not necessarily robust in a more general model where asymmetric information and uncertainty are present

penalty structures and deterrence in a two stage model experimental evidence multiperiod models of criminal enforcement based on the standard economic approach of becker 1968 generally find that the optimal penalty structure is either flat or declining we present the first experimental test of a two stage theoretical model that predicts decreasing penalty structures will yield greater deterrence than increasing penalty structures this prediction is based on the belief that if the penalty for the first offenses is sufficiently low the agent should commit the offense and continue to offend if undetected our results are consistent with the theoretical prediction that decreasing fine structures are more effective at reducing risky behavior jel c91 k42 k10

decision making under uncertainty capturing dynamic brand choice processes in turbulent consumer goods markets we construct two models of the behavior of consumers in an environment where there is uncertainty about brand attributes in our models both usage experience and advertising exposure give consumers noisy signals about brand attributes consumers use these signals to update their expectations of brand attributes in a bayesian manner the two models are 1 a dynamic model with immediate utility maximization and 2 a dynamic forward looking model in which consumers maximize the expected present value of utility over a planning horizon given this theoretical framework we derive from the bayesian learning framework how brand choice probabilities depend on past usage experience and advertising exposures we then form likelihood functions for the models and estimate them on nielsen scanner data for detergent we find that the functional forms for experience and advertising effects that we derive from the bayesian learning framework fit the data very well relative to flexible ad hoc functional forms such as exponential smoothing and also perform better at out of sample prediction another finding is that in the context of consumer learning of product attributes although the forward looking model fits the data statistically better at conventional significance levels both models produce similar parameter estimates and policy implications our estimates indicate that consumers are risk averse with respect to variation in brand attributes which discourages them from buying unfamiliar brands using the estimated behavioral models we perform various scenario evaluations to find how changes in marketing strategy affect brand choice both in the short and long run a key finding obtained from the policy experiments is that advertising intensity has only weak short run effects but a strong cumulative effect in the long run the substantive content of the paper is potentially of interest to academics in marketing economics and decision sciences as well as product managers marketing research managers and analysts interested in studying the effectiveness of marketing mix strategies our paper will be of particular interest to those interested in the long run effects of advertising note that our estimation strategy requires us to specify explicit behavioral models of consumer choice behavior derive the implied relationships among choice probabilities past purchases and marketing mix variables and then estimate the behavioral parameters of each model such an estimation strategy is referred to as structural estimation and econometric models that are based explicitly on the consumer s maximization problem and whose parameters are parameters of the consumers utility functions or of their constraints are referred to as structural models a key benefit of the structural approach is its potential usefulness for policy evaluation the parameters of structural models are invariant to policy that is they do not change due to a change in the policy in contrast the parameters of reduced form brand choice models are in general functions of marketing strategy variables e g consumer response to price may depend on pricing policy as a result the predictions of reduced form models for the outcomes of policy experiments may be unreliable because in making the prediction one must assume that the model parameters are unaffected by the policy change since the agents in our models choose among many alternative brands their choice probabilities take the form of higher order integrals we employ monte carlo methods to approximate these integrals and estimate our models using simulated maximum likelihood estimation of the dynamic forward looking model also requires that a dynamic programming problem be solved in order to form the likelihood function for this we use a new approximation method based on simulation and interpolation techniques these estimation techniques may be of interest to researchers and policy makers in many fields where dynamic choice among discrete alternatives is important such as marketing decision sciences labor and health economics and industrial organization

on dynamic real trade models abstract this paper examines the steady state implications of differences in tax policies in an overlapping generations two country two good dynamic model of international trade it is also shown that in the overlapping generations framework production diversity along with factor price equalization obtains in the long run

a reconsideration of enforcement leverage when penalties are restricted abstract harrington s 1988 model of state dependent enforcement of pollution standards indicates the potential for significant reductions in monitoring cost however this approach results in firms with identical pollution cost functions polluting at different levels and thereby failing to minimize control cost for a given total pollution reduction derivations indicate that a state independent approach with a modified standard will often yield a lower sum of pollution control and monitoring cost for a given level of pollution control

hierarchical design and enforcement of income tax policies abstract a hierarchical model of tax compliance is studied in which the government selects a tax policy and then delegates the responsibility to collect taxes to the irs there is a fixed distribution of income in the economy individuals differ by their income which is known niether to the government nor to the irs we completely characterize the solution to the irs s revenue maximizing problem when taxpayers are risk neutral the optimal auditing policy divides the reported incomes into at most three groups we show that the government provides a smaller budget to the irs than the irs would wish

enforcement leverage when penalties are restricted in the united states empirical studies of the enforcement of continuous compliance with environmental regulations especially air and water pollution regulations have repeatedly demonstrated the following i for most sources the frequency of surveillance is quite low ii even when violations are discovered fines or other penalties are rarely assessed in most states iii sources are nonetheless thought to be in compliance a large part of the time the evidence for the apparently low level of enforcement activity is found in a number of case studies of state and local enforcement of air and water quality regulations conducted jointly by the environmental protection agency epa and council on environmental quality ceg together with periodic surveys of implementation of air and water quality legislation conducted by the general accounting office gao these surveys show

niskanen effects in the california community colleges the regression results of this paper show that bureaucrats act to maximize both their outputs and their discretionary budgets as predicted by niskanen for demand constrained conditions but the evidence does not confirm the niskanen hypothesis concerning chronic oversupply by bureaus further the evidence here shows that the discretionary budgets of bureaus may not fall to zero as suggested by niskanen instead it would appear that given severe budget constraint bureaus may not produce an excess supply of output and may cut costs in an effort to maintain a positive discretionary budget balance

an economic evaluation of market development programmes for us dairy products abstract this study measured the effectiveness of us dairy export promotion programmes on increasing foreign demand and enhancing producers revenues an import demand equation based on panel data was used to test whether export promotion has a positive and significant impact on us dairy exports the effects of various promotion scenarios on the dairy market were then simulated and benefit cost ratios bcrs for these programmes were estimated there were three key findings first the combined effort of public and private dairy export promotion expenditures had a positive and statistically significant impact on demand for us dairy products in the world market the findings indicated that export promotion stimulated total dairy exports by 4 14 billion pounds on average per year which represented 55 8 of total exports second us dairy export promotion has been highly profitable for the nation s dairy farmers the calculated bcrs based on assumed elasticity of supply ranged from a low of 8 54 for th

modelling milk purchasing behaviour with a panel data double hurdle model in this study the double hurdle model typically used in cross sectional data is extended to panel data structures the new double hurdle model can account not only for the censored nature of commodity purchases but also for the dynamics of the purchase process in this model a flexible error structure is assumed to account for state dependence and household specific heterogeneity in the empirical application for milk purchases it is found that generic advertising increases the probability of market participation as well as the purchase quantity and incidence temporal dependence is also found in both purchase and participation equations

a model of optimal fines for repeat offenders abstract this paper analyzes optimal fines in a model in which individuals can commit up to two offenses the fine for the second offense is allowed to differ from the fine for the first offense there are four natural cases in the model defined by assumptions about the gains to individuals from committing the offense in the case fully analyzed it may be optimal to punish repeat offenders more severely than first time offenders in another case it may be optimal to impose less severe penalties on repeat offenders and in the two remaining cases the optimal penalty does not change

using competition to stimulate regulatory compliance a tournament based dynamic targeting mechanism abstract this article develops a tournament based dynamic targeting mechanism for achieving regulatory enforcement leverage in contrast to existing models which rely on a representative agent we model a game among a regulated group of agents possibly heterogeneous in their levels of a regulated activity that compete through their compliance decisions to avoid being targeted for future audits the empirical properties of the dynamic tournament are established using economics experiments in particular we test comparative statics highlight the importance of inducing competition through comparisons with a non competitive standards based targeting mechanism and demonstrate enforcement leverage through comparisons with simple random audits the experiments suggest that the dynamic tournament induces incentives consistent with theory and overall we find that introducing competition in the regulatory enforcement arena may have important advantages

emissions variability in tradable permit markets with imperfect enforcement and banking abstract in this laboratory experiment on emissions trading subjects face exogenous random emissions shocks after making production and emission control plans in some sessions subjects can bank their unused permits for future use after a reconciliation trading period following the shock realization subjects report their emissions to the regulatory authority and are placed in different inspection groups depending on their compliance history we identify important interactions between banking compliance and enforcement banking smoothes out the price variability arising from imperfect emissions control price stability comes at a cost however since noncompliance and emissions are significantly greater when banking is allowed

life cycle individual thrift and the wealth of nations this paper provides a review of the theory of the determinants of individual and national thrift that has come to be known as the life cycle hypothesis lch of saving applications to some current policy issues are also discussed part i deals with the state of the art on the eve of the formulation of the lch some 30 years ago part ii sets forth the theoretical foundations of the model in its original formulation and later amendment calling attention to various implications distinctive to it and sometimes counter intuitive it also includes a review of a number of crucial empirical tests both at the individual and the aggregate level part iii reviews some applications of lch to current policy issues though only in sketchy fashion as space constraints prevent fuller discussion this abstract was borrowed from another version of this item

optimal management of transfers an odd paradox abstract this paper considers the case of transfers when there exists a serious preference misalignment between the transfer maker and the beneficiary the former wants to reduce the resulting outcome discrepancy through monitoring the use of the transfer and imposing sanctions if the discrepancy proves too large this external discipline combines with the internal discipline of the beneficiary that is his her willingness and ability to align with the transfer maker s objective besides the fact that costs of monitoring and sanctioning are explicitly taken into account an original feature of our model specification is that the two types of discipline are made comparable they can be summed up to obtain an aggregate discipline we show that paradoxically an exogenous improvement of internal discipline may be over compensated by a fall of external discipline total discipline thus decreases and the discrepancy between the actual and the intended uses of the transfer increases instead of decreasing another consequence is that the relationship between internal and total disciplines may be non monotonic these results generalize to alternative specifications of the basic model

spending on alcohol evidence from the family expenditure survey 1970 1983 this paper reports on the investigation of a model of the determination of the share of household expenditure on alcohol using fes data for the united kingdom 1970 83 i e a time series of cross sections the authors pay special attention to the occurrence of zero expenditure variations in characteristics across the population and the modeling and interpretation of the stochastic term this term is modeled using the gamma distribution replacing the normal in tobit estimated parameters indicate strong positive skewness interactions between household characteristics and expenditure propensities are important copyright 1990 by royal economic society

impatience reputation and offending reconviction rates for offenders are high despite sentence severity increasing with the number of convictions the standard one shot model of crime provides little scope for exploring persistence effects although recent papers by emons and others have sought to put offending decisions into a more dynamic setting this article develops a simple two period model of offending in which criminal convictions act as an adverse signal in labour markets ordinary and multinomial logistic regression modelling is used to test the predictions of the theoritical model and explore the link between unemployment and convictions the empirical results which are based on longitudinal data from the national child development study ncds in the uk strongly support the view that ceteris paribus individuals with previous convictions are at higher risk of being unemployed

the enforcement of pollution control laws inspections violations and self reporting targeting is the practice of inspecting firms most likely to violate a regulation this paper provides empirical evidence on the role of targeting in regulatory compliance i propose that self reporting by a firm is used to demonstrate that firms are willing to cooperate the results indicate that there is a one quarter penalty period following a violation inspections are also determined by the economic situation of the surrounding community demonstrating that targeting opens the door to interest group influence inspections that detect violations encourage self reporting showing that firms demonstrate their desire to cooperate with regulators by disclosing violations

the theory of optimal law enforcement the economic literature on optimal law enforcement is very recent becker s seminal paper on crime and law enforcement dates from 1968 and most papers which are the focus of this survey have been published in the last ten years the core result presented by becker is the following the probability and the severity of punishment deter crime therefore the fine should be maximal since it is a costless transfer whereas the probability of detection and conviction is costly much of the recent work has attempted to show why becker s result may not hold

effects of institutional history and leniency on collusive corruption and tax evasion we investigate the effects of an institutional mechanism that incentivizes taxpayers to blow the whistle on collusive corruption and tax compliance we explore this through a formal leniency program in our experiment we nest collusive corruption within a tax evasion framework we not only study the effect of the presence of such a mechanism on behavior but also the dynamic effect caused by the introduction and the removal of leniency we find that in the presence of a leniency mechanism subjects collude and accept bribes less often while paying more taxes but there is no increase in bribe offers our results show that the introduction of the opportunity to blow the whistle decreases the collusion and bribe acceptance rate and increases the collected tax yield it also does not encourage bribe offers in contrast the removal of the institutional mechanism does not induce negative effects suggesting a positive spillover effect of leniency that persists even after the mechanism has been removed

income tax compliance in a principal agent framework previous analyses have modeled income tax evasion as a portfolio problem deriving the optimal consumption of the risky asset unreported income under the assumption of a fixed probability of detection the purpose of this paper is to examine some of these issues in tax compliance starting from a different set of assumptions in particular we compare alternative audit policies to the standard random audit policy we focus on an audit cutoff policy in which an agent triggers an audit if his or her reported income is too low and is not audited if reported income is sufficiently high this paper establishes two major results first random audit rules are weakly dominated by audit cutoff rules it can be shown given lump sum taxes and fines that these audit cutoff rules are the least cost policies which induce truthful reporting of income second the dominance of audit cutoff rules over random audit rules holds for lump sum as well as proportional taxation in fact the equilibrium consequences of the two are equivalent

modeling heterogeneity and state dependence in consumer choice behavior in frequently purchased consumer goods markets consumer brand choices exhibit substantial persistence across purchase occasions in this article i estimate a choice model that admits of both heterogeneity in preferences and true state dependence as sources of this persistence using nielsen scanner data on ketchup i find evidence for true state dependence in the choice process even after controlling for a rich heterogeneity structure simulation of the model indicates that the long term effect of a promotion induced purchase on future purchase probabilities is positive but small

statistical models for zero expenditures in household budgets household budget surveys are an important source of data on consumer s expenditure not just for individual consumers but also for estimating national aggregates however it is a widespread finding that for certain commodities most notably tobacco and alcohol the estimate from the household survey falls short of the known consumption total calculated with some confidence from data on production imports exports and excise duties for example in the british family expenditure survey with which we shall largely be concerned total tobacco expenditure was underestimated in 1976 by 21 percent see kemsley redpath and holmes 1980 p 51 much of this understatement together with that on alcohol is thought to occur because of the design of the survey which excludes many persons amongst whom consumption of such items is thought to be atypically high e g prisoners hoteliers and their residents merchant seamen even so the possibility remains that some of the understatement is due to various types of misreporting by households included in the survey in this paper we consider a model in which the standard tobit specification tobin 1958 is supplemented by the operation of a simple binary censor the tobit model is essentially a linear regression model in which non positive observations of the dependent variable are replaced by zero we take this specification as our starting point but add a second censoring process that randomly replaces a fraction of the observations generated by the tobit model bv zeroes the combined model can serve as a representation of several types of

the determinants of employee crime in the uk we present evidence on employee theft in the uk using data on actual recorded crime in a model where employees are rational cheaters whose theft decisions may also be influenced by individual characteristics we produce hypotheses about the role of labour market deterrence and individual influences on employee theft we then examine the role of these influences using regional crime data supplemented by data from the uk labour force survey and the home office our results provide information on employee theft as a particular type of crime on policy that may help to combat it and on alternative views of the motivation for crime

a double hurdle model of cigarette consumption this paper shows the importance of the double hurdle approach for modelling individuals cigarette consumption using data from the uk general household survey and argues that participation and consumption should be treated as separate individual choices the likelihood function for the full double hurdle is derived and it is shown how restrictions on the stochastic specification of the model and auxillary information which identifies ex smokers allow it to be decomposed the empirical results highlight the value of the sample separation information and the need to model starting and quitting as separate decisions

cutting environmental penalties to protect the environment abstract when pollutants are persistent and the polluter has private information regarding the occurrence of accidental releases and the cost of clean up we show that the penalty regime which most effectively protects the environment will involve penalties which are less than maximal the extent to which these penalties will be less than maximal is interestingly a non monotonic function of the persistence of the hazardous substance being handled with the highest penalties being appropriate in the case of pollutants of medium persistence our analysis complement consisting work which predicts that setting the penalties faced by some classes of violator below their maximal level may be compliance enhancing see for example harrington journal of public economics 1988 37 29 53 greenberg journal of economic theory 1984 32 1 13 kambhu journal of regulatory economics 1989 1 103 114

audit state dependent taxpayer compliance theory and evidence from colombia we develop and analyze a dynamic model of individual taxpayer compliance choice that predicts audit state dependent taxpayer compliance by distinguishing between forward looking versus myopic versus naive behavior we then test experimentally the audit state dependent model by reporting the results from the first tax compliance experiment run in colombia we find that subjects compliance rates increase with greater enforcement we also find more novel results fine rates should be increased after an audit and nudging myopic individuals toward reporting a constant rather than a fluctuating proportion of income would benefit both the taxpayer and the tax authority jel h26 c91

the economics of taxpayer compliance there is now a great deal of evidence suggesting that tax evasion is fairly widespread throughout european and north american economies estimates of the so called black economy indicate that perhaps 10 per cent of economic activity in these countries has been driven underground in the attempt to evade payment of tax for a detailed survey see pyle 1989 chs 2 4

accomplice witnesses and organized crime theory and evidence from italy we develop an agency model of organized crime accounting for the main trade offs involved in the introduction of an accomplice witness program we characterize the optimal policy and identify its main determinants in a framework where public officials can be dishonest our predictions are tested by using data for italy before and after the introduction of the 1991 accomplice witness program as predicted by the model and the earlier antitrust literature the program appears to have strengthened deterrence and enhanced prosecution moreover consistent with a novel prediction of our theory the evidence suggests that the program efficacy is affected by the judicial system efficiency

european competition policy modernization from notifications to legal exception council regulation ec 1 2003 came into force in may 2004 and replaced the mandatory notification of agreements by a regime of ex post monitoring this paper shows that ex post monitoring is the optimal audit regime when the competition authority s probability of error is low on the other hand the notification system becomes optimal when the competition authority s probability of error is high the paper also shows that block exemptions and black list regimes of per se il legality should be implemented when the agreements expected welfare impact is very high and very low respectively

ageing and private transport fuel expenditure do generations matter abstract an ageing population is generally associated with decreasing private transport related energy demand however we hold that besides this pure age effect other cultural elements should be considered in order to understand and forecast energy related choices individuals react to the pressure of several factors that define the concept of energy culture stephenson et al 2015 among which are sociodemographic and economic transformations and changes in lifestyle and pro environmental attitudes in this paper we analyse the use of fuels for private mobility in italy in our view this case is particularly interesting because of the country s very high car and motorcycle ownership rates and the very fast ageing of its population because of this demographic shift various generations coexist and a relevant share of the elderly population are still driving a car we use several waves of the italian household budget survey to run a double hurdle model augmented by age and cohort effects according to our estimates baby boomers exhibit a positive cohort effect so that their transport fuel expenditure is significantly higher compared with younger generations we interpret this result as a confirmation of evolving generational energy culture towards a sustainable transport system speeding up the decarbonisation process

self reporting investigation and evidentiary standards abstractself reporting schemes have become a substantial part of law enforcement this paper analyzes the optimal use of such schemes when the authority cannot commit to an ex post investigation effort i show that this leads to a negative relationship between self reporting incentives and investigation effort three main conclusions arise first violators self report with a probability of 1 if and only if full amnesty is offered second self reporting schemes are not efficient when the level of harm of the act is high finally authorities can increase the incentives to self report when they convict without hard evidence however a hard evidence standard provides more deterrence and is weakly welfare superior

incentive generating state dependent penalty system the case of income tax evasion abstract penalty systems can very often be looked upon as corrective measures established in order to eliminate or reduce costly externalities generated by optimizing economic agents hence penalties can be viewed as regulatory measures and their efficient structure should be of interest to economists we propose a dynamic incentive generating penalty system which if instituted may reduce at a given cost the generation of undesirable externalities the special case to which we refer is income tax evasion although our scheme should be applicable to any kind of externalities such as pollution of the environment violation of antirust laws and others which are created by repititive actions of economic agents

an experimental study of compliance and leverage in auditing and regulatory enforcement evidence suggests that a large majority of firms and individuals comply with regulations and tax laws even though the frequency of inspections and audits is often low moreover fines for noncompliance are also typically low when regulatory violations are discovered these observations are not consistent with static compliance models harrington 1988 modified these static models by specifying a dynamic game in which some agents have an incentive to comply even when the cost of compliance each period is greater than the expected penalty this paper reports a laboratory experiment based on the harrington model framework in which subjects move between two inspection groups that differ in the probability of inspection and severity of fine subjects decide to comply or not in the presence of low medium or high compliance costs enforcement leverage arises in the harrington model from movement between the inspection groups based on previous observed compliance and noncompliance our results indicate that consistent with the model violation rates increase when compliance costs become higher and as the probability of switching groups becomes lower behavior does not change as sharply as the model predicts however since violation rates do not jump from 0 to 1 as parameters vary across critical thresholds a simple model of bounded rationality explains these deviations from optimal behavior

community pressure for green behavior the desire to avoid rousing community hostility may encourage firms to behave in an environmentally responsible manner firms may engage in corporate social responsibility csr to maintain community support and or to regain the support of a community where it has been lost it has been conjectured that such informal regulation could effectively replace formal intervention in some settings and usefully complement it in others we explore these conjectures with mixed results informal regulation is necessarily less efficient than a well designed formal alternative and the pattern of green behavior induced by the threat of community hostility may increase or decrease welfare the existence of community pressure may increase or decrease the optimal calibration of a formal intervention in this case an environmental tax and may complement or detract from the incentives generated by an optimally calibrated tax

subgame perfect punishment for repeat offenders i introduction the literature on optimal law enforcement typically assumes that the government can commit to sanction schemes 1 this means the government can use any set of threats to penalize wrongdoers in particular if a crime occurs the government actually sanctions the wrongdoers even though ex post it may have no incentive to do so potential wrongdoers believe that the government will carry out the threat at any cost and therefore do not engage in the act in the first place in this article i give up the assumption that the government can commit to whatever sanction scheme i consider the analysis of optimal sanctions without the possibility to commit important because judges often have a lot of discretion as to the size of the penalty they may for example adjust sanctions to the financial possibilities age education and so on of the wrongdoer accordingly i allow only for sanctions that the government actually wishes to implement should a crime have occurred ruling out full commitment changes the optimal enforcement schemes suppose for example the government does not care about the sanction as is typically assumed in the literature then it will not enforce the penalty if a crime has happened given that there is say a small cost of doing so the rational criminal will anticipate the ex post enforcement behavior of the government therefore she will commit the crime because the threat of being sanctioned is not credible once one drops the commitment assumption the typical deterrence equilibria of the law enforcement literature between potential wrongdoers and the government are based on empty threats in the language of game theory the equilibria are not subgame perfect or time consistent i study the problem of subgame perfect sanctions using the framework of emons 2003 agents may commit a crime twice the act is inefficient the agents are thus to be deterred the agents are wealth constrained so that increasing the fine for the first offense means a reduction in the possible sanction for the second offense and vice versa the agents may follow history dependent strategies that is commit the crime a second time if and only if they were were not apprehended the first time the government seeks to minimize the probability of apprehension ignoring the government s commitment problem it is optimal to set the sanction for the first offense equal to the entire wealth of the agents while the sanction for the second offense equals zero the intuition is as follows a money penalty imposed for the second offense reduces the amount a person can pay for the first offense because the wealth available to pay penalties is assumed to be fixed over the two periods for that reason a higher probability event namely a first offense that is detected will be more effective use of the scarce money penalty resource than a lower probability event namely a second detected offense why is the probability of detection lower for the second rather than for the first crime simply because an agent faces the possibility of being sanctioned for the second crime if and only if he or she has already been sanctioned the first time for further results it is important to note that the optimal probability of apprehension increases with the benefit from the crimes this decreasing sanction scheme raises of course the issue of time consistency will the government really charge the agent the entire wealth when she was apprehended for the first crime knowing that then she will commit the second act for sure isn t it better for the government to renege and charge little for the first act so that the agent still has sufficient wealth to pay a sanction that deters the second crime given that the first act has been committed anyway that way the government can at least deter the second act to study this problem i consider a rent seeking government

avoiding tax avoidance a repeated game theoretic approach abstract we propose an optimal auditing scheme for the tax authorities who face a given tax and penalty functions and a given budget constraint under our proposed strategy individuals can be classified into one of three groups each group is characterized by two parameters i the probability of being audited in that group and ii into which group will an individual move if ii a he reported truthfully ii b he cheated it is then shown that there is a choice of these parameters so that in equilibrium i e when every individual maximizes his payoff given the auditing strategy the percentage of individuals that cheat is arbitrarily small

information and consumer perception of the organic attribute in fresh fruits and vegetables using a double hurdle model on panel data from 3 200 danish households monthly observations for 2002 2007 we study the effects of health related media information on the demand for organic fruit and vegetables we find that negative information about pesticides contained in conventional fruit and vegetables mainly influences the probability of a consumer entering the organic market not the quantities consumed by households that are already active on the organic market positive information that links health and the consumption of organic food influences both steps of the decision process our dataset includes information about consumers media habits which allows us to disentangle the direct effects of media information from the indirect effects of this information as it is disseminated through the population our results suggest that directly obtained information is the main type of information influencing consumers while information loadings by dissemination through the population have almost no effect on consumption

dynamic deterrence theory economic theories of deterrence have primarily been built on static models a common and serious shortcoming of the existing dynamic deterrence models is the assumption of a twoperiod structure that ignores recidivism the aims of this paper are to formulate and solve a general dynamic deterrence model that incorporates recidivistic behaviour to explore its implications and to derive some testable predictions the analysis shows how the value and the intensity of engaging in illegal activity change over time highlights the weaknesses of twoperiod deterrence models and compares the deterrent effectiveness of increasing the likelihood of punishment versus the severity of punishment finally the recidivistic model provides a structural foundation for the widely used stochastic process models of crime in operations research and criminology

optimal unemployment insurance with monitoring and sanctions this article analyses the design of optimal unemployment insurance in a search equilibrium framework where search effort among the unemployed is not perfectly observable we examine to what extent the optimal policy involves monitoring of search effort and benefit sanctions if observed search is deemed insufficient we find that introducing monitoring and sanctions represents a welfare improvement for reasonable estimates of monitoring costs this conclusion holds both relative to a system featuring indefinite payments of benefits and a system with a time limit on unemployment benefit receipt

life cycle saving and comparative advantage in the long run abstract this paper reformulates findlay s 1970 analysis by solving for life cycle saving explicitly the key parameters are the rate of population growth and the consumer s discount factor it is shown that findlay s result carries over even after the effect of population growth on the saving rate is taken into account

terms of trade factor intensities and the current account in a life cycle model this paper examines the effects of terms of trade changes on the external adjustment of a small open economy where each consumer has a life cycle saving function the supply side of the economy is given by the standard two sector model with two primary factors labour and capital it is shown that when both commodities are produced a terms of trade deterioration leads to a current account deficit surplus if the export import sector is more labour intensive

improving incentives in unemployment insurance a review of recent research abstract this paper provides a review of the recent literature on how incentives in unemployment insurance can be improved we are particularly concerned with three instruments i e the duration of benefit payments or more generally the time sequencing of benefits monitoring in conjunction with sanctions and workfare our reading of the theoretical literature is that the case for imposing a penalty on less active job search is fairly solid a growing number of empirical studies including randomized experiments are in line with this conclusion