income redistribution in open economies i propose a model of income redistribution in an open economy environment the world consists of a finite number of countries whose governments seek to maximize the welfare of their low skilled populations by taxing skilled workers labor income while tax competition limits the extent to which redistribution is possible as compared to the closed economy outcome when skilled people are internationally mobile i argue that race to the bottom does not necessarily occur even if the number of countries becomes arbitrarily large the asymptotic sustainability of the welfare state crucially depends on the statistical properties of the probability distribution of skilled people s location preferences

herding with and without payoff externalities an internet experiment most real world situations that are susceptible to herding are also characterized by direct payoff externalities yet the bulk of the theoretical and experimental literature on herding has focused on pure informational externalities in this paper we experimentally investigate the effects of several different forms of payoff externalities e g network effects first mover advantage etc in a standard information based herding model our results are based on an internet experiment with more than 6000 subjects of which more than 2400 participated in the treatments reported here including a subsample of 267 consultants from an international consulting firm we also replicate and review earlier cascade experiments finally we study reputation effects i e the influence of success models in the context of herding

voting power in the european union enlargement abstract the shapley shubik power index in a voting situation depends on the number of orderings in which each player is pivotal the banzhaf power index depends on the number of ways in which each voter can effect a swing if there are n players in a voting situation then the function which measures the worst case running time for computing these indices is in o n 2 n we present a combinatorial method based in generating functions to compute these power indices efficiently in weighted double or triple majority games and we study the time complexity of the algorithms moreover we calculate these power indices for the countries in the council of ministers of the european union under the new decision rules prescribed by the treaty of nice

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

incentive equivalence with fixed migration costs abstract if migration between communities is costless and if policy makers in each community anticipate the migration response to policy changes then the interests of the two communities are perfectly aligned decentralization is efficient this incentive equivalence is well known however the first order approach used in virtually all the literature may obscure the fact that no convexity assumptions need be made about technology or tastes this fact underscores the relevance of incentive equivalence even when there are scale economies in the public sector here the consequences of positive migration costs for this incentive equivalence are considered in contrast with much of the literature migration costs are assumed the same for everyone this formulation differs from the more common attachment to home assumption of heterogeneous migration costs conditional on the direction of migration interests of different communities are still perfectly aligned but natives of different communities may prefer different directions of migration weakening incentive equivalence if local policy makers have the power to induce large changes in migration flows however incentive equivalence fails only if economies of scale in population are important so that communities may be under populated

an introduction to field experiments in economics this special issue highlights an empirical approach that has increasingly grown in prominence in the last decade field experiments while field experiments can be used quite generally in economics to test theories predictions to measure key parameters and to provide insights into the generalizability of empirical results this special issue focuses on using field experiments to explore questions within the economics of charity the issue contains six distinct field experimental studies that investigate various aspects associated with the economics of charitable giving the issue also includes a fitting tribute to one of the earliest experimenters to depart from traditional lab methods peter bohm who curiously has not received deep credit or broad acclaim hopefully this issue will begin to rectify this oversight this abstract was borrowed from another version of this item

political equilibrium income distribution and growth this paper analyzes the impact of income distribution on growth when investment in human capital is the source of growth and individuals vote over the degree of redistribution in the economy the model has three main features first very different patterns of income distribution are conducive to high growth at different levels of per capita income second growth is associated with an externality whereby investment in human capital by one group increases the productivity of other groups thus potentially enabling them to invest in human capital third the initial pattern of income distribution and the resulting political equilibrium are crucial in determining whether the transmission of this externality is promoted in which case growth is enhanced or prevented in which case growth is stopped using a non overlapping generations model with voting i derive several empirical implications in particular the model implies an inverted u relation between levels of inequality and levels of income in cross sections but not necessarily in time series a result that seems consistent with a number of empirical studies

the impressive contribution of canadian economists to fiscal federalism theory and policy the study of fiscal federalism has been central to the research of canadian economists since the rowell sirois report to mark the 50th anniversary of the founding of the canadian economics association it is fitting to take stock of their contributions we focus on the period since 1982 and emphasize the main scholarly publications of an inclusive array of canadian economists and economists in canadian universities our attention is devoted to applications in the context of federal and provincial governments setting aside related issues in municipal government finance we briefly discuss instances where the fiscal federalism literature has informed policy debates including through policy research institutes government commissions and international organizations la contribution impressionnante des economistes canadiens a la theorie et a la politique du federalisme fiscal l etude du federalisme fiscal a ete un element central de la recherche des economistes canadiens depuis la commission rowell sirois au moment de celebrer le 50eme anniversaire de la fondation de l association canadienne d economique le moment est approprie pour prendre la mesure de leurs contributions on se concentre sur la periode apres 1982 et on souligne les principales publications savantes d un ensemble inclusif d economistes canadiens et d economistes dans les universites canadiennes une attention particuliere est portee aux applications dans le contexte federal et provincial mettant de cote les enjeux relies a la finance municipale on discute brievement des instances ou la litterature sur le federalisme fiscal a eclaire les debats de politiques publiques y compris a travers les instituts de recherche sur les politiques publiques les commissions gouvernementales et les organisations internationales

social responsibility messages and worker wage requirements field experimental evidence from online labor marketplaces this paper examines the effects of employer social responsibility on the wages workers demand through randomized field experiments in two online labor marketplaces workers were recruited for short term jobs and i manipulated whether or not they received information about the employer s social responsibility i then observed the payment workers were willing to accept for the job in the first experiment information about the employer s social responsibility marginally reduced prospective workers wage requirements on average and had a significant effect on the highest performers who were willing to give up the wage differential they would otherwise demand in the second prospective workers submitted 44 lower wage bids for the same job after learning about the employer s social responsibility this paper provides causal empirical evidence of a revealed preference for social responsibility in the workplace and of a greater preference among the highest performers more broadly it provides evidence that

skills and the pattern of migration the role of qualitative and quantitative restrictions on international labor mobility this paper develops a two country model of international migration in an attempt to study the role of both qualitative and quantitative restrictions on international labor mobility individuals are distinguished in terms of their ability and age enabling the model to examine factors which influence the age and skill profile of those who migrate as well as the equilibrium flow of migrants and the pattern of factor rewards in the two economies effects of changes in certain parameters of the model are related to the nature of the immigration policy enforced by the host country the role of emigration restrictions is also considered excerpt

the role of surprise understanding overreaction and underreaction to unanticipated events using in play soccer betting market abstract previous research in finance has found evidences of both overreaction and underreaction to unanticipated events but has yet to explain why investors overreact to certain events while underreacting to others in this paper we hypothesize that while market participants generally underreact to new events due to conservatism the extent of underreaction is moderated by surprise thus causing market participants to overreact to events that are highly surprising we test our hypothesis using data from an in play soccer betting market where new events goals are clearly and exogenously defined and the degree of surprise can be directly quantified goals scored by underdogs are more surprising we provide both statistical and economic evidences in support of our hypothesis

social protection and political competition this paper analyses how the level of social protection is determined when its choice depends on political competition first this is done under autarky then the analysis is extended to take account of the existence of an international capital market we show that social protection never increases under international competition and in several circumstances drastically decreases

local discouragement and global collapse a theory of coordination avalanches abstract we study a dynamic game in which all players initially possess the same information and coordinate on a high level of activity eventually players with a long string of bad experiences become inactive this prospect can cause a coordination avalanche in which all activity in the population stops coordination avalanches are part of pareto efficient equilibria they can occur at any point in the game their occurrence does not depend on the true state of nature and allowing players to exchange information may merely hasten their onset we present applications to search markets organizational meltdown and inefficient computer upgrades jel d83

optimal income taxation and migration a world welfare point of view abstract this paper considers a world in which a distortionary income tax must be employed to raise and redistribute revenue the optimal taxation of emigrants relative to those left behind is examined under the objective of world social welfare maximization when tastes for consumption and labor do not depend directly on residence the optimal tax system induces individuals to reside where the marginal products of their chosen labor supplies are highest this paper also proves the existence of an optimal tax system under which each individual resides where he pays the greatest tax this result holds even when tastes are allowed to vary with residence in an interesting way

neoclassical theory versus prospect theory evidence from the marketplace several experimental studies have provided evidence that suggest indifference curves have a kink around the current endowment level these results which clearly contradict closely held economic doctrines have led some influential commentators to call for an entirely new economic paradigm to displace conventional neoclassical theory e g prospect theory which invokes psychological effects this paper pits neoclassical theory against prospect theory by investigating data drawn from more than 375 subjects actively participating in a well functioning marketplace the pattern of results suggests that prospect theory adequately organizes behavior among inexperienced consumers but consumers with intense market experience behave largely in accordance with neoclassical predictions moreover the data are consistent with the notion that consumers learn to overcome the endowment effect in situations beyond specific problems they have previously encountered this transference of behavior across domains has important implications in both a positive and normative sense

efficient migration and redistribution abstract it has often been noted that the brain drain may be abetted by highly progressive tax systems in the regions which are likely sources for emigration by those with the most income earning potential this paper presents the case in favour of such policies the underlying assumption here is that there are productivity differences between regions and that emigration of the most skilled workers from less productive regions increases the overall value of national output the problem lies in sharing these gains with the less skilled workers left behind in the low productivity region if national governments can transfer income among regions but if the transfers cannot be targeted to particular individuals then there is a trade off between equity and efficiency generous transfers redistribute the gains but tend to impede efficient migration since prospective migrants will only emigrate if their earnings net of all fiscal transfers and net of migration costs are higher in the destination region greater tax progressivity in the source region helps relax a constraint and make the trade off less difficult

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

priming the charitable pump an experimental investigation of two stage raffles i introduction lotteries or raffles are widely used as a voluntary fund raising mechanism for a variety of causes lottery pot sizes range from hundreds of dollars at small scale church and community organized events to hundreds of millions of dollars in state lotteries 1 small scale raffles are often conducted for charitable causes such as disaster relief efforts with proceeds transferred to charitable organizations the implementation of fixed prize raffles in the field may be challenging because the organizers can end up losing money if the total proceeds from the raffle are smaller than the value of the fixed prize self financing raffles in which the prize is generated through donations themselves are therefore an attractive alternative very popular in this class are simple 50 50 raffles in which one half of the ticket proceeds goes to the winner and the other half is used for the raffle s charitable cause the goal of a 50 50 charity raffle is simply to sell as many tickets as possible in order to maximize revenue for the charity one way to sell more tickets may be to advertise the size of the pot while raffle tickets are for sale one common example is to announce the pot size of a 50 50 raffle at halftime of a sporting event 2 if a larger pot size makes raffle tickets more attractive then revealing the intermediate pot size increases the sales to second half buyers especially if the pot size is larger than what they expected it to be another possibility is that the halftime announcement actually changes the incentives that participants face when buying tickets it may be possible to observe strategic contributions by the more charitable participants in the first half to make less charitable participants contribute more in the second half as the pot size becomes more attractive we refer to the effect be it strategic or not of a larger intermediate pot size inducing higher contributions in the second half as priming the pump of a raffle the goal of this paper is to better understand bidder behavior in these sorts of raffles where the intermediate pot size is revealed so that organizers can earn more money for their charity by comparing different raffle mechanisms in a controlled laboratory environment we can isolate those aspects of bidder behavior that an organizer may capitalize on more specifically we study whether priming the pump occurs with modifications of a simple 50 50 raffle in our two stage raffles participants can buy raffle tickets twice the proceeds from ticket sales in the first stage are added to the pot of the second stage we consider two types of two stage raffles in the complete draw down two stage raffle all the tickets purchased at the first stage are destroyed that is the proceeds of the first stage are used as seed money for the second stage in the no draw down two stage raffle the tickets purchased at the first stage continue to participate in the second stage draw that is the difference between this raffle and the standard one stage raffle is purely informational participants observe the first stage donations and can donate more if they like our study can be classified as a mixture of a laboratory and framed field experiment harrison and list 2004 list 2008 although the experiment is conducted in standard laboratory conditions with students as subjects we do not use induced valuations of the public good but instead allow subjects to contribute money to an actual charity 3 this reduces the amount of control we have over subjects incentives but provides a more immediate external validity to our results using a model of a charity raffle where bidders have a heterogeneous warm glow of donating to the charity we show that under certain conditions on the participants preferences priming the pump of the two stage raffle occurs in equilibrium however priming the pump increases revenues only if there is a drawing down of tickets after the first stage

spectrum value for coalitional games abstract assuming a spectrum or ordering of the players of a coalitional game as in a political spectrum in a parliamentary situation we consider a variation of the shapley value in which coalitions may only be formed if they are connected with respect to the spectrum this results in a naturally asymmetric power index in which positioning along the spectrum is critical we present both a characterization of this value by means of properties and combinatoric formulae for calculating it in simple majority games the greatest power accrues to moderate players who are located neither at the extremes of the spectrum nor in its center in supermajority games power increasingly accrues towards the extremes and in unanimity games all power is held by the players at the extreme of the spectrum

public economics and the theory of public policy when james mirrlees and william vickrey were awarded the nobel prize in economics last year it marked only the third time that the award had gone to scholars of public sector economics in contrast to the reception given to the previous two winners ronald coase and james buchanan the news was greeted with some bewilderment by policy specialists once removed from the academic literature who are mirrlees and vickrey and what have they done that has been of lasting benefit to the study of public economics let alone of practical benefit to policy makers this seems to me to be a fair question coase after all had set out a conceptual approach to the study of externalities and transaction costs that has become an implicit part of the methodological baggage carried around by policy economists and policy makers alike buchanan was in part responsible for the welcome emphasis on institutions in public sector decision making and for insisting that politicians bureaucrats and voters are human beings with human motives the legacy of mirrlees and vickrey is less well known but i would argue it is every bit as profound their approach to the theory of economic policy which is grounded on the importance of imperfect information as a constraint on public policy has changed the very nature of public economics research and of its implications for economic

averting economic collapse and the solipsism bias we study the behavior of experimental subjects who have to make a sequence of risky investment decisions in the presence of network externalities subjects follow a simple heuristic investing after positive experiences and reducing their propensity to invest after a failure this result contrasts with the theoretical findings of jeitschko and taylor jeitschko t d taylor c 2001 local discouragement and global collapse a theory of coordination avalanches amer econ rev 91 1 208 224 in which even agents who have only good experiences eventually stop investing because they account for the fact that others with worse experiences will quit this can trigger sudden economic collapse a coordination avalanche even in the most efficient bayesian equilibrium in the experiment subjects follow their own experiences and disregard the possible bad experiences of others thus exhibiting behavior that we term solipsism bias solipsism results in sustained investment activity and thus averts complete collapse

costly communication and learning from failure in organizational coordination abstract this paper investigates the coordination failure that arises from combining two small pre existing groups and focuses on the reaction of group members to this change in environment in an experiment small groups were first able to establish a coordination history in a repeated minimum effort game in the second phase two groups with different histories were combined into a larger group unlike most of the previous literature subjects could endogenously choose to communicate in the newly formed group for a small fee while communication proved to be necessary for preventing coordination failure in the newly formed group only every second subject was willing to implement communication particularly subjects from groups with a less efficient coordination experience in the first phase were more likely to realize the potential of coordination failure in the new group and were thus more likely to decide for communication the results may be useful for understanding how groups coordinate in changing environments as they are common in economic contexts

migration and education subsidies by governments a game theoretic analysis abstract the brain drain alters both the endowments of educated labor and the cost of increasing the endowment of such labor in both countries of immigration and emigration assuming governments of the countries involved have the domestic endowment of skilled labor as an objective for either economic with market imperfection or noneconomic reasons the brain drain alters government subsidies for education both directly and as a result of interactions between the involved governments this has implications for the burden of education expenditures and net supplies of educated labor in a world with a brain drain the analysis also shows the need for inclusion of a mechanism for transfers between the involved governments if a compensation scheme is to yield pareto efficient migration

the fiscal impact of high skilled emigration flows of indians to the u s abstract what are the fiscal consequences of high skilled emigration for source countries this paper develops methodologies for inferring these consequences and applies them to the recent sizable emigration of high skilled workers from india to the u s this wave of emigration from india to the u s is shown to be unusually concentrated amongst the prime age work force the highly educated and high earners in order to calculate the fiscal losses associated with these emigrants estimates of their counterfactual earnings distributions are generated using two distinct methods and integrated with a model of the indian fiscal system to calculate fiscal consequences conservative estimates indicate that the annual net fiscal impact to india of high skilled emigration to the u s is one half of 1 of gross national income or 2 5 of total fiscal revenues the sensitivity of these results to the method of predicting counterfactual incomes and the implications of these estimates for other developing countries is discussed in detail

excluded coalitions and the distribution of power in parliaments abstractin this article we introduce a new value for cooperative games this value is based on the shapley 1953 value and takes into account that players exclude coalitions with other players one example of such exclusions are the coalition statements of parliamentary parties a case study demonstrates the application of the new value for these situations

tax policy in the presence of emigration recent policy and theoretical discussions of the effects of highly skilled migration from the underdeveloped countries the so called brain drain have focused on a proposal bhagwati 1972 to levy a supplementary income tax on those who migrate the proceeds of such a tax to be transmitted to the developing country of origin or to developing countries en bloc for developmental spending the welfare implications of such a tax were analyzed in an earlier paper of ours bhagwati and hamada 1974 in the context of a model of the country of emigration characterized by sticky wages and harrisstodaro 1971 type of unemployment in subsequent papers the tax has been analyzed also in the context of modified models still incorporating the unemployment phenomena by rodriguez 1975 and mcculloch yellen 1975 2 essentially these models analyze the impact of the income tax on emigrants incomes as arising primarily through the reduced differential

teaching to the rating school accountability and the distribution of student achievement this paper examines whether minimum competency school accountability systems such as those created under no child left behind influence the distribution of student achievement because school ratings in these systems only incorporate students test scores via pass rates this type of system increases incentives for schools to improve the performance of students who are on the margin of passing but does not increase short run incentives for schools to improve other students performance using student level panel data from texas during the 1990 s i explicitly calculate schools short run incentives to improve various students expected performance and i find that schools do respond to these incentives students perform better than expected when their test score is particularly important for their schools accountability rating also low achieving students perform better than expected in math when many of their classmates math scores are important for the schools rating while relatively high achieving students do not perform better distributional effects appear to be related to broad changes in resources or instruction as well as narrowly tailored attempts to improve the performance of specific students

the political geography of tax h e avens and tax hells worldwide many governments rely on personal income taxation as one of their major sources of tax revenue casual empirical evidence suggests that although most developed countries levy substantial taxes particularly on higher incomes there also exist a few countries that are characterized by no or very low income taxation a distinguishing feature of the countries in the latter group is that they are geographically very small as can be seen from table 1 which presents international income tax policies and geographical dimensions of some selected countries in the present paper we investigate whether the geography of a country is related to its pattern of taxation central to our argument is the ongoing international integration in the last decades in some cases e g in the european union the process has advanced to the point at which all formal constraints to mobility have been abandoned this development has also greatly improved the mobility of households across states or national borders in contrast to the mobility of production factors however the effects of household mobility migration are not confined to budgetary consequences as taxpayers immigrate or emigrate the inand outflow of citizens also alters policy objectives by changing the composition of the electorate in a jurisdiction at the same time migration decisions especially those of wealthy individuals are based on local tax policies consequently the migration of households determines fiscal policies through the interplay of two basic effects 1 residential choices determine tax rates through a process in which a jurisdiction s inhabitants select their local policies and 2 tax and welfare policies in each jurisdiction influence residential decisions as we argue in this paper this interdependency of residential and political decisions may provide an explanation for the stylized facts illustrated in table 1 we consider a simple framework in which households differ in incomes and national tax policies are democratically determined as a natural implication of their earning characteristics high income households ceteris paribus prefer to live in countries with low taxation for ease of exposition we refer to those countries as tax h e avens in a slight perturbation of popular nomenclature low income households in contrast are more interested in generous public spending than in low income tax rates ceteris paribus they prefer to reside in countries with large welfare programs financed by substantial taxation which we call tax hells for obvious reasons thus individual preferences imply a self selection process which leads to the segregation of households across countries according to income classes 1 if this segregation is in turn supported by a national vote for low taxes in countries where high income earners live and high taxes in countries where lower income earners live an equilibrium with tax heavens populated by wealthy residents and tax hells populated by the less affluent evolves yet the geographical size of countries plays a crucial role in this development first it affects the number of a country s inhabitants the population size because households sort hansen apax partners company possartstr 11 81679 miinchen germany kessler department of economics university of bonn adenauerallee 24 42 53113 bonn germany kessler wipol uni bonn de we thank two anonymous referees marcus berliant dennis epple christian ewerhart gerhard glomm david pines urs schweizer and participants in presentations at the university of munich the 1997 site meeting stanford the 1997 american econometric society summer meeting pasadena and the 1996 iipf congress tel aviv for helpful suggestions and discussions both authors gratefully acknowledge financial support by the deutsche forschungsgemeinschaft sfb 303 at the university of bonn remaining errors are our own the views expressed in this paper should not be attributed to apax partners company 1 the sorting of individuals by preferences across jurisdictions goes back to the famous contribution of charles m tiebout 1956 on migration as a means to reveal preferences over public goods

on the choice between capital and labour mobility trade theorists since the pioneering work of kemp 1966 have considered the question of national advantage from international factor mobility by considering only one factor to be so mobile kemp analyzed elegantly the question of optimal policies in 2 x 2 x 2 model and showed that since monopoly power could exist in both the goods and factor markets in consequence of international capital mobility the optimal policy intervention would generally involve two policy instruments tariffs cum subsidies on goods and duties cum subsidies on international capital flows jones 1967 subsequently extended kemp s argument to the secondbest context by examining the optimal level of one of these instruments when the other was arbitrarily set at zero elsewhere in this issue brecher 1983 shows in an elegant and original contribution that the jones policy problem is in fact a third best rather than a second best problem as generally believed and that if only one of the tariff and capital mobility taxes cumsubsidies can be used it is generally possible to improve welfare further by admitting an altogether different domestic policy instrument namely a production or consumption tax cum subsidy as the case may be the research of bhagwati was supported by the german marshall fund grant no l 34015 the problem analyzed in the paper was posed in bhagwati 1979 and an early ingenious and neglected analysis in ramaswami 1968 was noted by bhagwati we have profited greatly from these contributions also from reading webb 1970 ramaswami 1970 and a recent paper of calvo and wellisz 1983 on this problem this result is in consonance with the results of bhagwati ramaswami and srinivasan 1969 for the case without international capital mobility but the consonance is intuitive only after the result was established for the case with international capital mobility