risk taking and taxation an alternative perspective abstract the analysis of risk taking and taxation has almost invariably been in a portfolio choice framework this paper presents the alternative perspective of an occupational choice framework where risk taking involves the additional element of discrete choice between safe and risky activities it is shown that the specification of equilibrium must of necessity have a general equilibrium character in this setting the paper develops rules for government intervention in the market equilibrium and analyses the effects of taxation on risk taking

taxation in matching markets what is the impact of taxation in matching markets in matching markets because agents have heterogeneous preferences over potential partners welfare depends on which agents are matched to each other in equilibrium taxes in matching markets can generate inefficiency by changing who is matched to whom even if the number of workers at each firm is unaffected for markets in which workers refuse to match without a positive wage higher taxes decrease match efficiency however in more balanced matching markets where transfers may flow in either direction such as the student college market lowering taxes may decrease match efficiency because an agent can transfer enough to buy an inefficient partner only to be bought back when taxes are lowered further simulations show that in matching markets traditional deadweight loss estimates based on the change in taxable income can be substantially biased in either direction jel classification h20 j24 c78 d13

institutions and progress an insistent theme in richard nelson s work is that of capitalism as an engine of progress in this paper i explore this idea through a sequence of his writing distinguishing progress as outcome from progress as instituted process this leads to a deeper issue within this nelsonian theme namely the incompatibility between progress and equilibrium i argue that evolving systems are ordered and coordinated but they are never in equilibrium capitalism is restless it always generates change from within and the proximate source of this progressive tendency is the uneven accumulation of knowledge capitalism is restless because knowledge is restless copyright 2001 by oxford university press

everyone may benefit from subsidising entry to risky occupations this paper shows that in the presence of costly state verification directly or indirectly subsidising entry to risky occupations may benefit everyone the result holds even in the presence of private insurance indeed it may be desirable to prohibit private insurance in favour of subsidies to hazardous activities these findings do not depend on the government having an advantage over the private sector in observing outcomes the explanation is that through its influence on equilibrium price feasible fiscal policy can shift the return distribution so as to create collective insurance more cheaply than is possible through private contracting with its requirement of costly auditing amongst applications is a case for a loss making state bank offering high interest rate loans

collective learning tacit knowledge and regional innovative capacity lawson c and lorenz e 1999 collective learning tacit knowledge and regional innovative capacity reg studies 33 305 317 the paper reviews key ideas in the firm capabilities literature and shows how they can be usefully extended to develop a conception of collective learning among regionally clustered enterprises the paper also explores the relationship between codifiable and tacit knowledge in the innovation process and investigates the claim that tacit knowledge because it is difficult to transfer in the absence of labour mobility may constitute a basis for sustained regional competitive advantage the closing section uses case study material based on minneapolis and cambridge to illustrate the importance for innovation of a regional capability for combining and integrating diverse knowledge and of the sources of such capabilities as pre conditions for successful high technology regions lawson c et lorenz e 1999 l apprentissage collectif la connaissance implicite et la capacite regio

the constitution of economic policy one of the most exciting intellectual moments of my career was my 1984 discovery of knut wicksell s unknown and untranslated dissertation finanztheoretische untersuchungen buried in the dusty stacks of chicago s old harper library only the immediate post dissertation leisure of an academic novice allowed for the browsing that produced my own dramatic example of learning by serendipity wicksell s new principle of justice in taxation gave me a tremendous surge of self confidence wicksell who was an established figure in the history of economic ideas challenged the orthodoxy of public finance theory along lines that were congenial with my own developing stream of critical consciousness from that moment in chicago i took on the determination to make wicksell s contribution known to a wider audience and i commenced immediately a translation effort that took some time and considerable help from elizabeth henderson before final publication this abstract was borrowed from another version of this item

bye bye central planning hello market hiccups institutional transition in romania romania is considered as having had two transition periods a gradual transitional phase from 1990 to 1996 followed by shock therapy since 1997 the key to the trans ition from a planned economy to a market economy is the institutions that are estab lished to enable the market to operate while this is acknowledged after ten years of transition in romania what has not been fully addressed is the appropriateness of the forms of institutions that have been suggested for adoption and whether they con stitute the right mix our contention is that both phases of the transition process have largely been guided by the prescriptions arising from a new institutionalist perspec tive and that a more effective transition would have occurred if more attention had been paid to the evolutionary nature of the institutions established along the lines advocated by old american institutionalists

history friendly models of industry evolution the computer industry the model presented in this paper is the first of a new generation of evolutionary economic models history friendly models history friendly models are formal models that aim to capture in stylized form qualitative and appreciative theories about the mechanisms and factors affecting industry evolution technological advance and institutional change put forth by empirical scholars of industrial economics technological change business organization and strategy and other social scientists in this paper we have analyzed the long term evolution of the computer industry in particular we have examined the emergence of a dominant firm in mainframes the introduction of a major innovation microprocessor the opening up of a new market segment personal computers ad the competition there between newcomers and diversified old established firms we have taken a body of verbal appreciative theorizing developed a formal representation of that theory and found that the formal version of that theory is consistent and capable of generating the stylized facts the appreciative theory purports to explain going through this analytic exercise has significantly sharpened our theoretical understanding of the key factors behind salient aspects of the evolution of the computer industry copyright 1999 by oxford university press

tax evasion and occupational choice this paper is concerned with the combined effect of tax compliance and tax audit policy on the occupational choice of individuals and on public policy objectives such as tax revenue total production and social welfare individuals are assumed to have a choice between riskless work and a risky entrepreneurial occupation they are only differentiated according to their attitudes towards risk more risk averse individuals go into the safe occupation and less risk averse people become entrepreneurs tax evasion is only accessible to the latter and therefore its control tends to discourage risk taking whether control of tax evasion is desirable for the economy as a whole depends on the objective function of the government it is shown that tax audit policy has conflicting effects on tax revenue per capita income and social welfare these conflicts are illustrated through a numerical example in this paper the emphasis is placed on the clarity and the simplicity of the presentation so as to argue that even though the tax schedule can hardly be differentiated across individuals tax evasion and its control can be used by policymakers to introduce variability in the individual s tax treatment

the effects of taxation on partnership investment abstract partnership are becoming more prevalent in the united states and may represent a significant source of investment in the future consequently understanding the effects of taxation on partnership investment may become increasingly important this paper examines how the level of taxation and the degree of progressivity of the tax system affect partnership investment our analysis also examines how such factors as partner outside income partner preferences for risk taking and the manner in which the partnership is organized can interact with the tax code to alter partnership investment levels

the incidence and efficiency costs of corporate taxation when corporate and noncorporate firms produce the same good one difficulty confronting harberger s celebrated model of the corporate income tax is how to treat noncorporate production in primarily corporate sectors and corporate production in primarily noncorporate sectors the paper presents a two good model with corporate and noncorporate production of both goods the incidence of corporate tax in our mutual production model can differ markedly from that in the harberger model the difference between the two models in deadweight loss is also striking with losses in the mutual production model many times larger than those in the harberger model

optimal taxation and firm formation abstract this paper analyzes non linear optimal taxation under asymmetric information in a general equilibrium model with endogenous firm formation it first shows under a weak separability assumption on technologies that output and input taxes are not necessary if profits are optimally taxed it then examines the progressivity or lack of it of the optimal profit tax and describes the corresponding effects on the structure of the production sector relative to the first best solution finally the paper investigates conditions under which the provision of public goods can be decentralized

from theory to practice canadian economists contributions to public finance we survey canadian economists contributions to the field of public finance from the mid 1980s to 2016 we highlight the development and extension of the models and tools of public economics and the empirical studies that have deepened our understanding of the efficiency and distributional issues over a wide range of public finance issues we also highlight contributions to the development of policies through commissioned reports and the important role that canadian institutions the canadian tax foundation the think tanks and the federal and provincial departments of finance have played in shaping tax and fiscal policies de la theorie a la pratique contributions des economistes canadiens a la finance publique on examine les contributions des economistes canadiens au domaine de la finance publique du milieu des annees 1980 a 2016 on souligne le developpement et l extension des modeles et des outils d economie publique et les etudes empiriques qui ont aide a approfondir notre comprehension des enjeux d efficacite et de distribution dans un vaste eventail de questions de finance publique on souligne aussi les contributions des rapports commandites au developpement de politiques publiques ainsi que le role important d institutions canadiennes l association canadienne d etudes fiscales les groupes d experts ainsi que les ministeres des finances du gouvernement federal et des gouvernements provinciaux dans le design des politiques fiscales

the optimal linear income tax revisited abstract this paper shows that the mirrlees seade conditions of agent monotonicity and noninferiority of leisure imply the positivity of the optimal marginal income tax rate in sheshinski s model of linear income taxation as well as in the general model the optimal marginal tax rate is bounded above by the rawlsian rate which in turn is bounded by the revenue maximizing rate the optimal marginal tax rate may be arbitrarily close to the rawlsian rate however the optimal marginal tax rate is bounded away from the revenue maximizing rate whenever the individual with the lowest ability works

towards a knowledge based theory of the geographical cluster co located firms within related industries enhance the ability to create knowledge by variation and a deepened division of labour the interdependent development between economic activities and local institutions make the cluster attractive to some industries and hostile to others the very reasons why cognitive distance might be small within the cluster tend to make cognitive distance great between clusters and make interfirm co operation across bodies of knowledge more costly the additional value created when clustering may justify the additional cost copyright 2001 by oxford university press

the agenda for growth theory a different point of view it is argued here that the basic assumptions of neoclassical growth theory inherently limit the ability of models within that theory to cast light on economic growth as we have experienced it this holds for the new growth theory as well as the older growth theory of the 1950s and 190js it is proposed that to make real headway with understanding economic growth a growth theory needs the following elements 1 the ability to treat technological advance as an essentially disequilibrium process 2 to incorporate a theory of the firm in which firm capabilities and differences across firms are central elements and 3 to incorporate into the theory a richer body of institutions than currently are treated in standard growth theory including at the least universities copyright 1998 by oxford university press

emergent innovation systems and the delivery of clinical services the case of intra ocular lenses abstract this paper is an exploration of the dynamics of technical change in medicine we argue that innovation in medicine is a process that is distributed across time space and epistemic and institutional domains that it entails the entrepreneurial effort of creative individuals as well as the emergence of correlated understanding among heterogeneous agents whose rules of interaction are contingently instituted in socio economic systems along unfolding scientific and technological trajectories we illustrate our arguments through an in depth analysis of a major ophthalmologic innovation the intra ocular lens that has literally transformed the treatment of cataract in the developed world and has the potential to do so in many developing countries we investigate the advancement of clinical knowledge about the disease the development of effective technological capabilities and the co evolution of the supply capacity and demand of a micro innovation system emerged along a specific sequence of interrelated problems and associated solutions which engaged scientists technicians practitioners regulators and patients alike over a period of around three decades

resistance to reform status quo bias in the presence of individual specific uncertainty comment why do governments so often fail to adopt policies which economists consider to be efficiency enhancing our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform we show that there is a bias towards the status quo and hence against efficiency enhancing reforms whenever some of the individual gainers and losers from reform cannot be identified beforehand there are reforms which once adopted will receive adequate political support but would have failed to carry the day ex ante the argument does not rely on risk aversion irrationality or hysteresis due to sunk costs jel d72 f13 why do governments so often fail to adopt policies that economists consider to be efficiency enhancing this is one of the fundamental questions of political economy the answer usually relies on what may be

localised production of technology for global markets given the trends towards increasing globalization of markets and of production the globalization of technology remains a subject of considerable interest to analysts and policymakers in the 1990s the main conclusion of this paper is that there is no systematic evidence to suggest that widespread globalization of technological activities occurred in the 1980s the evidence based on the u s patenting activities of 569 of the world s largest firms based in 13 countries and covering 17 product groups shows that for an overwhelming majority of them technology production remains close to the home base the analysis also shows the dangers of generalizing on the basis of anecdotal evidence from a small sample of firms from a particular country or sector c 1995 academic press inc copyright 1995 by oxford university press

the emergence of technology systems knowledge production and distribution in the case of the emilian plastics district the emergence of technology systems is the result of interdependen t dynamics of generation and diffusion of complementary bits of localised technological knowledge technological communication is the crucial element assessing the collective conditions under which technological knowledge is accumulated and diffused the case study of the emerging emilian technological system in the plastics sector shows that the synchronic and diachronic localised interactions among industrial dynamics institutional r d efforts and technological interrelatedness are the determinants of the systematic production accumulation and distribution of localised technological knowledge in turn explaining the origin and development of the technology system itself

asymmetric information occupational choice and government policy a model of credit markets under asymmetric information is proposed in which individuals differ in abilities that are valued in both entrepreneurship and paid employment unlike the heterogeneous ability model of de meza and webb 1987 over investment is not inevitable under investment and credit rationing can occur instead this result depends on the novel possibility of there being greater separation of types in paid employment than in entrepreneurship the model allows individuals to be monitored in both occupations and permits derivation of the conditions under which the novel possibility holds the role of corrective government policies is also discussed

optimal linear income taxation in models with occupational choice the purpose of this paper is to investigate the implication of occupational choice for linear income taxation occupational choice is restricted to entrepreneurship versus wage earning different settings are considered concerning the introduction of uncertainty and that of individuals heterogeneity in ability or risk aversion for each setting an optimal tax formula is derived and shown to be made up of various components pertaining to insurance redistribution and efficiency

on the form of transfers to special interests an important question in political economy concerns the form of transfers to special interests the chicago view is that political competition leads politicians to make such transfers efficiently the virginia position is that lack of information on the part of voters leads politicians to favor inefficient sneaky methods of redistribution this paper analyzes the form of transfers in a model of political competition in which politicians have incentives to make transfers to special interests it shows that when voters have imperfect information about both the effects of policy and the predispositions of politicians inefficient methods of redistribution may be employed

choice of occupation tax incidence and piecemeal tax revision a model is presented where workers move between two different occupations in response to economic incentives which are distorted by an income tax wages assume equilibrium values which are affected by the tax parameters incidence and welfare effects of small tax revisions are analyzed with particular attention to the role of tax induced wage changes it is demonstrated that within the economic setting of the model such wage effects may be neglected in assessments of piecemeal tax revisions

local social capital and entrepreneurship we aim to contribute to the analysis of the role that spacebound social capital plays in local regional entrepreneurship we compare social capital with other forms of capital the conclusion is that in the main social capital can be analyzed in the same way as other capital but it has some important special attributes with these attributes as starting point we sketch an outline model of how the spatially defined producer surplus and consumer surplus form a place surplus and of the role played by social capital in the creation of the producer surplus a rereading of schumpeter shows that he was aware of several aspects of what we denominate entrepreneurship inhibiting and facilitating aspects of social capital finally we discuss some formal economic modeling approaches to the theoretical relationship between social capital and entrepreneurship

the use of knowledge about society abstract selection of efficient institutions or policies in politics requires constituents to estimate the net benefits of political reforms political competition fails to inform constituents of the costs of forgone political alternatives ignorance of political opportunity costs prevents the adoption of welfare enhancing reforms of public institutions and policies the empirical record supports this contention

technology systems and technology policy in an evolutionary framework the central purpose of this paper is to outline an evolutionary theory of technology policy and to connect it with the emerging literature on national systems of innovation any understanding of technology policy must be based on a clear understanding of the nature of technology and the important differences between science and technology technology can be treated in terms of knowledge skills and artifacts and in each case there are different variety generating mechanisms different selection processes and different institutional structures for policy purposes the degree of connection between these different dimensions of technology is at the core of technology policy c 1995 academic press inc copyright 1995 by oxford university press

systematically biased beliefs about economics robust evidence of judgemental anomalies from the survey of americans and economists on the economy differences between the general public s positive economic views and economists resemble other judgemental anomalies laypeople and experts systematically disagree i analyse this puzzle using data from the survey of americans and economists on the economy the paper first tests and decisively rejects the hypothesis that the differences solely reflect economists self serving bias then it examines whether economists political ideology and party loyalties explain the disagreement if anything this slightly increases their magnitude the effect of economic training clearly falls but remains large after adding education to the set of control variables apparent biases robustness suggests that the anomaly is real

tax progressivity and self employment evidence from canadian provinces we examine the effects of personal income tax progressivity in the sense of rising marginal income tax rate on self employment the impacts of income tax progressivity on self employment depend on the relative effects of taxing success and the presence of tax evasion opportunities empirical estimates using canadian provincial data for the period 1979 2006 indicate that there is a negative association between income tax progressivity and self employment this suggests that the adverse impact of income tax on entrepreneurial risk taking outweighs the tax evasion opportunities for the self employed an important implication of our results is that a reduction in income tax progressivity encourages self employment the empirical estimates are robust to the various sensitivity checks

redistributive taxation in the roy model we consider optimal redistribution in a model where individuals can self select into one of several possible sectors based on heterogeneity in a multidimensional skill vector we show that when the government does not observe the sectoral choice or underlying skills of its citizens the constrained pareto frontier can be implemented with a single non linear income tax we derive formulas for this optimal tax schedule if sectoral inputs are complements a many sector model with self selection leads to optimal income taxes that are less progressive than the corresponding taxes in a standard single sector model under natural conditions however they are more progressive than in a multi sector model without occupational choice or without overlapping wage distributions as in stiglitz 1982

policies for the development of knowledge intensive local production systems starting from the empirical literature concerning the analysis of industrial districts this paper focuses on the importance of industrial policies in supporting the development and consolidation of local production systems here institutions and markets are envisaged as equally important for long term performance the objective is to propose a conceptual framework for the formulation of public policies that places organisational learning at the centre of interest

what accounts for the chilean saving miracle this paper examines the recent saving performance of the chilean economy in the light of its long run 1940 96 trends the first conclusion that can be derived from the data is that most of the increase in private saving since the mid 1980s is due to business saving household saving turns out to be a stationary variable with zero mean since business saving has a unit root households do not seem to take the saving of firms into account when making their own saving decisions within the theoretical framework of a model of business investment with liquidity constraints we estimate a var for business saving private investment public saving and foreign saving the current account deficit we are able to determine that business saving is unaffected by public saving but that in the long run foreign saving and business saving are perfect substitutes private investment business saving and foreign saving are jointly determined the policy conclusions are that policies that stimulate investment are likely to lead to an increase in private saving that policies aimed at raising household saving will be ineffective and that increases in public saving are very powerful for increasing domestic saving in the long run copyright 2001 by oxford university press

law or economics w hen aaron director and edward levi launched the journal of law and economics in 1958 director suggested the title law or economics this alternative title certainly described the world more accurately at that time the traditional attitude of each discipline toward the other had been one of indifference only gradually has that attitude been replaced by a mixture of cooperation and hostility the first systematic application in america of economics to law was the use of price theory to explain economic phenomena involved in the antitrust cases director made creative use of price theory to explain phenomena such as tie in sales and patent licensing and assisted younger colleagues such as john mcgee and lester telser in their respective studies of predatory competition and resale price maintenance in such applications professional economic analysis was replacing the amateur economics of the lawyer lawyers did not welcome this development the national committee for the study of the antitrust laws was the scene of a deep schism between the fifty three lawyers and the eight economists 2 these numbers probably represented the belief that 13 percent of antitrust policy is economics the remainder law at one point the lawyers attempted to exclude the economists completely from the formulation of the report the division was not simply one between angels and legally trained devils consider the question of price discrimination economists insisted that price discrimination could persist only under noncompetitive conditions under full competition rivals would undermine any attempt to sell part of the supply at a higher price the lawyers argued to the contrary

sources of inefficiency in a representative democracy a dynamic analysis this paper studies the efficiency of policy choice in representative democracies it extends the citizen candidate model of democratic policy making to a dynamic environment equilibrium policy choices are shown to be efficient in the sense that in each period conditional on future policies being selected through the democratic process there exists no alternative current policy choices which can raise the expected utilities of all citizens however policies that would be declared efficient by standard economic criteria are not necessarily adopted in political equilibrium the paper argues that these divergencies are legitimately viewed as politicalfailures

the diffusion of regional innovation capabilities evidence from italian patent data quatraro f diffusion of regional innovation capabilities evidence from italian patent data regional studies this paper investigates the diffusion of regional innovation capabilities within the manufacturing sector the competence based theory of the region allows for combining the schumpeterian view upon innovation and business cycles and the growth poles theory innovation capabilities spread within the region after the expansion of the propulsive sector due to learning dynamics adopting a methodology for the analysis of diffusion processes the paper presents empirical evidence on italian regions the results show that in late industrialized regions the diffusion of innovation capabilities is faster than in the early industrialized ones the role of research and development and complementary changes in the economic structure is also investigated quatraro f la diffusion des capacites d innovation regionale des preuves provenant des donnees italiennes sur les brevets regional studies cet article

the shift to knowledge intensive production in the plastics processing industry and its implications for infrastructure development three case studies new york state england and israel abstract during the 1980 s the plastic processing industry in developed countries has had to shift to knowledge intensive production in order to remain competitive to accomplish this the industry was forced to reorganize in order to ensure the existence of a technological infrastructure that would permit such production to take place in this paper a comparative study was made of this shift in new york state u s england and israel the main findings are 1 most processors are small firms that cannot provide all technological services such as research and marketing in house consequently they depend on external services 2 the formation of adequete services may be inhibited by failure of market forces compelling firms to cooperate to assure their development 3 cooperation is feasible only if firms understand that in the new production approach industrial activity takes place in a network composed of processors research and development centers materials suppliers trade companies and end users 4 in new york state such awareness developed during the 1980s and contributed to the expansion of technological infrastructure and the upgrading of firms 5 in england technological services developed partly with government assistance but most processors lacking awareness of the developments made few restructuring efforts the only exceptions were those serving sophisticated end users such as the defense and automative industries 6 israeli industry failed to create adequate services until 1991 however many kibbutz factories with their highly educated labor force successfully developed their own services even though this often caused wasteful redundancy of efforts the principal conclusion is that policies meant to stimulate restructurng should focus above all on creating awareness of developments in the industry and ensuring an educated labor force moreover inter firm cooperation should be stimulated to ensure development of technological services and industrial networking

critical survey the new geographical turn in economics some critical reflections over the past few years a new geographical economics has emerged focused on the spatial agglomeration of industry and the long run convergence of regional incomes several leading names are associated with this geographical turn including paul krugman michael porter robert barro and w brian arthur this new economic geography it is argued here is neither that new nor is it geography instead it is a reworking or re invention using recent developments in formal mathematical mainstream economics of traditional location theory and regional science as such it is quite opposed to and difficult to reconcile with the work on regional development and industrial agglomeration being carried out in economic geography proper

the architecture and dynamics of industrial ecosystems diversification and innovative industrial renewal in emilia romagna the paper aims at advancing our understanding of the architecture and diversification dynamics of industrial ecosystems and identifying policies for the innovative industrial renewal of mature economies industrial ecosystems are here defined as multi tiered production systems involving heterogeneous agents operating in sectoral value chains and contributing to the capability domains of the ecosystem and its participants with closely complementary but dissimilar sets of resources and capabilities the geographical boundaries of the industrial ecosystem are shaped by the evolving interdependencies linking organisations within the ecosystem and by the new linkages consolidating beyond that thus the industrial ecosystem is a structured production space centred mainly on its productive organisations as well as other institutions intermediaries and demand side actors purposefully involved in co value creation processes along various types of diversification and innovative industrial renewal trajectories drawing on a five year research programme in the emilia romagna industrial ecosystem a number of case studies are introduced to highlight these trajectories and the underpinning structural learning dynamics the paper concludes by identifying a number of policy implications focusing on strategies for enhancing the structural readiness of the industrial ecosystem and promoting smart diversification and innovative industrial renewal policies jel classifications d20 o25 o30

basic research inside the firm lessons from an in depth case study abstract the economic analysis of basic research in firms has been a growing concern but only a few attempts have been made to understand the realities which characterize the implementation of this activity in an in depth case study this paper considers the organisational specificities of basic research inside the firm and emphasizes the strategic role of human resources it shows that the process of innovation which was seen in the 1970s as a stock of information to be managed became during the 1980s a sequential learning process which covers a variety of different but complementary organizational designs in the basic research unit on this basis some analytical implications for technology and innovation processes are suggested as the production process is a sequential learning process an innovative firm strategy is defined as one which is able to balance short and long terms requirements with regard to profitability this appears as an out of equilibrium problem where the crucial determinant is the organizational design chosen by the firm in order to generate and implement new learning and skills

towards a competence theory of the region this paper argues the case for extending the competence theory of the firm or more generally the competence perspective to analysis of the region the relevance of the perspective follows from the characterisation of productive systems such as firms and regions as ensembles of competences that emerge from but are not reducible to social interaction attention is drawn to an identifiable although unacknowledged convergence of ideas in the recent regional literature arguing that these ideas are best re conceptualised in terms of regional competences the cluster of hightechnology firms in the cambridge region of the uk is briefly referred to in order to illustrate the main ideas of the paper

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

are risk regulators rational evidence from hazardous waste cleanup decisions a large literature in economics and social science focuses on how people reason about risks reactions of individuals to risk frequently depart from behavior predicted by full information variants of expected utility theory risk regulators are human and are subject to political pressures that are reflective of people s attitudes toward risk as a result the public policies they espouse may reflect errors in judgment about risk many biases stem from misperceptions of risk individuals overestimate small probabilities overestimate the risks associated with highly publicized dangers and have preferences over the manner not just the magnitude in which risks arise environmental risks associated with hazardous waste sites may be particularly prone to such errors since they involve small risks that are highly publicized indeed the general public ranks hazardous waste sites as the leading environmental risk a growing literature also analyzes how the decisions of risk regulators depart from choices predicted in a standard benefit cost framework as roger g noll and james e krier 1990 point out since regulators are both human and political their decisions may reflect risk biases regulators may exhibit these biases as individuals and because their constituents will express regulatory demands based on risk perceptions risk regulators may take into account the identity of the parties exposed to risk the level of scrutiny by interest groups the nature of congressional representation of affected constituents and the degree of political activity by potentially exposed individuals 3 errors in risk perceptions and risk decisions cause individuals to diverge from expected utility maximization similar errors by policy makers and the influence of risk politics cause regulators to diverge from social welfare maximization this paper examines decisions made by federal and state regulators at hazardous waste sites addressed by the superfund program to determine how their decisions diverge from those predicted by expected utility theory and benefitcost analysis we analyze whether risk perceptions and politics influence two decisions central to the how clean is clean debate at superfund sites the selection of chemical cleanup targets and the expenditure of remediation funds at these contaminated sites we also explore the interactive influence of risk perception factors and political demands previous research on the regulation of chemical risks in standard setting indicates that decisions reflect evidence of risk biases and responsiveness to political factors in assessing the determinants of the epa s decision to cancel pesticide registration maureen l cropper et al 1992 found that the epa was more likely to cancel a pesticide in instances featuring higher risks to the maximally exposed individual user lower benefits associated with continued use of the pesticide higher values of intervention by environmental groups mea viscusi harvard law school harvard university cambridge ma 02138 hamilton sanford institute of public policy duke university durham nc 27708 we have benefited from the comments from two referees and the excellent research assistance of jason bell kristen blann jahn hakes and robert malme research support was provided under cooperative agreement no cr 823604 01 from the u s environmental protection agency office of policy planning and evaluation dr alan carlin and dr suzanne giannini spohn served as contract officers all views and errors expressed are our own l see u s environmental protection agency epa 1987 for a report on this survey evidence 2 this theme is also articulated in richard j zeckhauser and viscusi 1990 noll 1989 provides a more general assessment of the interaction between political concerns and regulatory policy which is a central theme of this paper 3political factors have long played a prominent role in local hazardous waste policies see among others linda cohen 1981 howard kunreuther and douglas easterling 1990 1992 and kunreuther and rajeev gowda 1990

the bias towards zero in aggregate perceptions an explanation based on rationally calculating individuals i introduction a central theme in the study of economic behavior is individual rationality or utility maximizing behavior contrary to the accusations of many outside critics the economics assumption of rationality neither denies that information is costly nor implies that decisions are error free rational expectations allows for ignorance but insists on the absence of systematic errors in the aggregate even if some individuals make large underestimates their errors are offset by large overestimates made by others alternatively even if people on average underestimate the effect of some variable during one period they may overestimate its effect at a later date these assumptions form the basis for the standard conclusion that the government cannot systematically outsmart the public the theory and application of rational expectations has generated a vast literature over the last couple of decades it is now well known that the application of rational expectations theory to actual cases may for instance be unsuitable when there are systematic errors in the observed variables when loss functions are not quadratic or when variables are constrained to take only positive values while such limitations may well be problematic these objections have in our view not been very damaging in the sense that rational expectations still provides a natural starting point for much economic analysis like rational expectations this paper takes individual rationality as its central theme yet we reach a radically different conclusion from rational expectations regarding aggregate behavior we demonstrate that individual errors in identifying the relationships among variables cause a downward bias in the aggregate that would be equivalent to the public underestimating the strengths of the true relationships rational expectations has considered the misestimation type of error which can cancel out in the aggregate but with errors in identifying relationships there exists no similar cancelling out effect and thus the public appears to irrationally underestimate the strengths of relationships the paper is organized as follows first we set up a simple formal model to examine the misestimation problem and then contrast it to the identification problem section iii explains why the identification problem can be so important even when a relatively small number of variables are involved section iv reviews empirical evidence of bias in the expectations formation literature as shown in section v our hypothesis can be used to explain political business cycles in a standard aggregate supply and demand framework ii theory in our model individuals acquire knowledge in two steps they first identify the causal relationship between two or more variables and then estimate the strength of that relationship as with herbert a simon s satisficing approach 1959 1979 and the analysis in ronald a heiner 1988 we assume finite intellectual capabilities however our model neither assumes nor implies anything about simon s satisficing approach and the often related concept of bounded rationality instead our inquiry is strictly limited to the consequences of omitting variables and will not address the more ambitious question of what strategies individuals might adopt to improve learning like heiner we distinguish between the reliability of making decisions and the issue of obtaining information heiner shows that while decision making itself might be flawless when individuals face only a very limited amount of information it is optimal for them to choose a larger information set and enter into the imperfect decision zone he provides several different reasons finite channel capacity information complexity and nonlocal information for why the advantage of having much information also translates into more decision error while heiner s model deals with individuals making correct or incorrect decisions his underlying reasoning could equally well be used to motivate our analysis of why a portion of the population fails to appreciate certain economic relationships

the system dynamics of collective knowledge from gradualism and saltationism to punctuated change abstract the economics of localized technological change provides an original framework to model the dynamics of technological innovation as the result of the interaction between the inducement to change the technology generated by the mismatch between plans and expectations and the characteristics of the system the interplay between networking costs and knowledge supermodularity can explain both punctuated and gradual change small variations in the parameters can generate either gradual or discontinuous changes punctuated technological change is likely to take place when the interplay between positive and negative knowledge externalities leads to the creation of commons of collective knowledge and hence new technological systems

taxation risk and returns to scale abstract this paper examines the effect of a profit tax with full loss offset on the equilibrium number of firms equilibrium size of firms and the equilibrium wage rate the effect of such a tax depends on economies of scale in particular if stochastic increasing returns to scale prevail at equilibrium then the imposition of such a tax raises the equilibrium wage rate this has implications for optimal taxation and tax incidence

the optimal linear taxation of employment and self employment incomes abstract this paper models optimal linear taxation when occupational choice and labour supply are endogenous workers choose between paid employment self employment and unemployment self employment incomes are risky and employees may be involuntarily laid off calibrating the model to the uk economy the optimal tax solution involves relatively high taxation with substantial redistribution and a higher nominal but not effective marginal tax rate imposed on the self employed than on employees the implications of making unemployment benefits as well as tax rates endogenous are also analysed and robustness checks are performed