bidding behavior at sequential first price auctions with out supply uncertainty a laboratory analysis abstract we report on a series of experiments that test the effects of an uncertain supply on bidding behavior and prices in sequential first price auctions with private independent values and unit demands supply is assumed uncertain when buyers do not know the exact number of units to be sold i e the length of the sequence we observe an important overbidding in all but the last stage of a sequence no matter whether supply is certain and a non monotone behavior when supply is certain yet the data qualitatively support most stage to stage bid predictions and the price trend predictions for risk neutral bidders

any non welfarist method of policy assessment violates the pareto principle reply the public at large many policymakers and a number of economists hold views of social welfare that are non welfarist that is they attach some importance to factors other than the effects of policies on individuals utilities we show however that any non welfarist method of policy assessment violates the pareto principle

on the effects of joint bidding in independent private value auctions an experimental study abstract this article explores the effect of a subset of symmetric bidders joining to bid together possible applications include mergers collusion and joint bidding arrangements the change produces a strong party with a more advantageous value distribution than the remaining weak bidder s the predicted effects include inefficiency a decrease in the seller s revenue and higher bidders payoffs under risk neutrality the members of the strong party benefit less than the weak bidders the prediction is reversed when the bidders are sufficiently risk averse these hypotheses are tested experimentally contrary to the theory joint bidding increases efficiency and the seller s revenue decreases by less than expected strong bidders benefit more than weak bidders indicating that incentives to bid jointly may be greater than hypothesized additionally the experiment assesses the effect of group decision making a nash equilibrium prediction for individual group differences based on differences in risk attitudes is not supported by the data

revealed social preferences of dutch political parties we measure the redistributive preferences of dutch political parties using unique detailed information from their election proposals by employing the inverse optimal tax method we calculate the political weights across the income distribution for each political party we find that all dutch political parties give a higher political weight to middle incomes than to the poor moreover the political weights of the rich are close to zero furthermore we detect a strong political status quo bias as the political weights of all political parties hardly deviate from the weights implied by the pre existing tax system we argue that political economy considerations are key in understanding these results

on the optimal progressivity of the income tax code this paper computes the optimal progressivity of the income tax code in a dynamic general equilibrium model with household heterogeneity in which uninsurable labor pro ductivity risk gives rise to a nontrivial income and wealth distribution a progressive tax system serves as a partial substitute for missing insurance markets and enhances an equal distribution of economic welfare these bene cial eects of a progressive tax system have to be traded oagainst the e ciency loss arising from distorting endoge nous labor supply and capital accumulation decisions a determination of the optimal progressivity of the income tax code therefore calls for a quantitative exploration using a utilitarian steady state social welfare criterion we nd that the optimal us income tax is well approximated by a at tax rate of19 5 and a xed deduction of about 3 700 the steady state welfare gains from a fundamental tax reform towards this tax system are equivalent to 0 4 higher consumption in each state of the world an explicit computation of the transition path induced by a reform of the current towards the optimal tax system indicates however that a majority of the population currently alive would suer welfare losses calling into question the political feasibility of such

fixed price equilibria in a multifirm model abstract in a simple temperary equilibrium model with three commodities labour goods and money and two sectors there are different firms each having its own production function there now exist four types of fixed price equilibria keynesian classical repressed inflation undercounsumption in the last type consumers are not rationed some producers are rationed on the goods market and other producers on the labour market there exist three different aggregate production functions that have to be applied in keynesian classical and repressed inflation situations respectively for the fourth case no aggregate production function exists

risk perceptions and distributional judgments abstract we examine the role of laboratory questionnaire experiments and recent applied empirical research on attitudes in understanding the relationships between people s perceptions of inequality and their perceptions of risk we consider risk in three interpretations in vacuo in day to day life and in the original position

popular acceptance of inequality due to innate brute luck and support for classical benefit based taxation abstract u s survey respondents views on distributive justice differ in two specific related ways from what is conventionally assumed in modern optimal tax research when expressing their preferences over allocations in stylized hypothetical scenarios meant to isolate key features of the tax problem a large share of respondents resist the full equalization of unequal outcomes due to innate brute luck that standard analyses recommend a similar share prefer a classical benefit based logic for taxes over the conventional logic of diminishing marginal social welfare moreover these two views are linked respondents who more strongly resist equalization are more likely to prefer the classical benefit based principle though the amazon mechanical turk survey population is not a representative sample of the u s population robustness of these results across demographic traits and political views suggests that a large share of the american public holds views inconsistent with standard welfarist objectives

on the principle of equal sacrifice in income taxation abstract in an influential article by young journal of economic theory 1988 44 321 335 it is shown that the traditional equal sacrifice principles in taxation can be justified from a non utilitarian perspective by proving that equal sacrifice is in fact a consequence of more primitive concepts of distributive justice this result is obtained in a distribution theoretic setting where total revenue to be raised is fixed the present paper studies the same question in a setting where the basic problem is to determine a tax function without any reference to the total tax revenue a setting which is familiar from the theory of progressive taxation and shows that i there exists a utility function which is continuous and strictly increasing relative to which all agents sacrifice equally if and only if the tax function is incentive preserving and ii any convex hence progressive and incentive preserving tax function equalizes sacrifice relative to a utility function which is continuous strictly increasing and concave

winner s curse without overbidding abstract we report the results of a series of second price auction experiments where each bidder s signal is given by a normally distributed value plus a normally distributed error while bidders values differ in one treatment they are the same in another which allows for a direct test of the winner s curse irrespective of confounding factors bidders may also fall prey to a news curse when they do not sufficiently take into account that signals and errors are correlated we find that the effects of the winner s curse are mitigated by a news curse and loss or risk aversion

positive and normative judgments implicit in u s tax policy and the costs of unequal growth and recessions calculating the welfare implications of changes to economic policy or shocks requires economists to decide on a normative criterion one approach is to elicit the relevant moral criteria from real world policy choices converting a normative decision into a positive inference as in the recent surge of inverse optimum research we find that capitalizing on the potential of this approach is not as straightforward as we might hope we perform the inverse optimum inference on u s tax policy from 1979 through 2010 and argue that the results either undermine the normative relevance of the approach or challenge conventional assumptions upon which economists routinely rely when performing welfare evaluations

perception theoretic foundations of weighted utilitarianism we provide a microfoundation for a weighted utilitarian social welfare function that reflects common moral intuitions about interpersonal comparisons of utilities if utility is only ordinal in the usual microeconomic sense interpersonal comparisons are meaningless nonetheless economics often adopt utilitarian welfare functions assuming that comparable utility functions can be calibrated using information beyond consumer choice data we show that consumer choice data alone are sufficient as suggested by edgeworth 1881 just noticeable differences jnds provide a common unit of measure for interpersonal comparisons of utility differences we prove that a simple monotonicity axiom implies a weighted utilitarian aggregation of preferences with weights proportional to individual jnds

on the sign of the optimum marginal income tax this paper studies a central aspect of optimal income taxation as modelled in mirrlees original paper on the topic identical leisure consumption preferences qualitatively homogeneous skills in production namely whether given concave utilitarianism alone the optimal marginal income tax will be non negative a well known positive answer to this question in weak inequality form was given in the said paper which however we show requires additive separability of individual utility in the ordinal and cardinal senses our main result here is to derive the required strict positivity of the marginal tax under weak conditions slightly wider than noninferiority of consumption and leisure with preferences otherwise arbitrary

on the equitability of progressive taxation abstract we propose the principle of equal sacrifice to determine the class of vertically inequitable progressive taxes a necessary condition for an income tax function to be equal sacrifice is formulated and hence a subclass of progressive taxes which cannot inflict the same sacrifice upon all individuals relative toanystrictly increasing and concave utility function is determined conversely it is shown in a general framework that any convex thus progressive tax function satisfies the principle of equal sacrifice our findings point to the fact that equal sacrifice under progressive income taxation depends heavily upon the degree of marginal rate as opposed to average rate progressivity journal of economic literatureclassification numbers d63 h20

on income taxation and the core abstract the core of an optimal income tax economy is examined in such economies optima are usually second best because the identities of the agents are not known to the government although it is generally unclear how to handle information problems in cooperative games such as the one examined here two core concepts are explored for the first concept incentive compatibility is imposed only within potential blocking coalitions and the core consists only of head taxes or is empty if there are no increasing returns to coalition size for the second concept incentive compatibility is also imposed for potential entrants into blocking coalitions and the core is shown to be empty for a simple reasonable and interesting class of models

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

progressive taxation and the equal sacrifice principle abstract a classical problem in public finance is when does equal sacrifice imply progressive taxation suppose that a tax schedule imposes equal sacrifice on all taxpayers in loss of utility and that this property is preserved under re indexing of the schedule then the utility function must exhibit constant relative risk aversion i e it must be logarithmic or a power function if equal sacrifice relative to such a utility function holds for all taxable incomes and if tax rates do not exceed 100 percent then the degree of relative risk aversion must be at least unity and the tax must be nonregressive

revisiting the classical view of benefit based taxation this paper explores how the persistently popular classical logic of bene t based taxation in which an individual s bene t from public goods is tied to his or her income earning ability can be incorporated into modern optimal tax theory if lindahl s methods are applied to that view of bene ts rst best optimal policy can be characterized analytically as depending on a few potentially estimable statistics in particular the coe cient of complementarity between public goods and innate talent constrained optimal policy with a pareto e cient objective that strikes a balance controlled by a single parameter between this principle and the familiar utilitarian criterion can be simulated using conventional constraints and methods a wide range of optimal policy outcomes can result including those that match well several features of existing policies to the extent that such an objective re ects the mixed normative reasoning behind prevailing

comparative study of one bid versus two bid auctions abstract the paper focuses on a comparative investigation of the standard one bid first price auction and a corresponding two bid auction where each buyer may place two bids a high bid and a low one and the winner pays his low bid if this was higher than all other bids we characterize the equilibria of the two mechanisms and prove some results on the ranking of revenues for the symmetric case we show that subjects in an experiment prefer the two bid over the one bid auction when given the possibility of choosing between the two and compare the observed behavior to the theoretical predictions

measuring economic efficiency using inverse optimum weights abstract this paper provides a method to measure the traditional kaldor hicks notion of economic efficiency when taxes affect behavior in contrast to traditional unweighted surplus measuring efficiency requires weighting individual benefits or surplus by the marginal cost to the government of providing a 1 transfer at each income level these weights correspond to the solution to the inverse optimum program in the optimal tax literature they are the social planning weights that would rationalize the status quo tax schedule as optimal i estimate the weights using the universe of us income tax returns from 2012 the results suggest that measuring economic efficiency requires weighting surplus accruing to the poor roughly 1 5 2 times more than surplus accruing to the rich this is because 1 of surplus to the poor can be turned into roughly 1 5 2 of surplus to the rich by reducing the progressivity of the tax schedule following kaldor and hicks original applications i compare income distributions over time in the us and across countries the results suggest us economic growth is 15 20 lower due to increased inequality than is suggested by changes in gdp because of its higher inequality the u s is unable to replicate the income distribution of countries like austria and the netherlands despite having higher national income per capita

independent private value auctions bidder behaviour in first second and third price auctions with varying numbers of bidders the symmetric equilibrium of third price auctions is characterized it makes a number of contrasting predictions relative to firms and second price auctions bids exceed private values the marginal effects on bids of an increase in private values is greater than one increasing numbers of bidders reduces bids and risk aversion requires bidding below the risk neutral nash equilibrium in the experiment bidders do not always satisfy the point predictions of the theory however the game theoretic models correctly anticipate at least directionally the important effects of the price rule changes copyright 1993 by royal economic society

marginal income tax rates in the united states a non parametric approach abstract the objective of this paper is to estimate both the u s federal marginal income tax rate and the state and local marginal income tax rates we use the non parametric regression method and data on income and tax extracted from u s individual tax model files for the period 1985 1995 the flexibility of the non parametric approach and the information at the individual level enable us to construct a more reliable time series of the average federal marginal income tax rates and that of the average state and local marginal income tax rates our results suggest that the average federal marginal income tax rate varies from 18 2 to 21 8 and the average state and local marginal income tax rate varies from 4 7 to 5 6 we also find that the state and local income tax accounts for roughly 18 of the total income taxes paid during 1985 1995 moreover our analysis shows that stephenson journal of monetary economics 41 1998 pp 389 409 provides the most consistent tax rate series for use in applications that require estimates of tax rates for years prior to 1985

how should capital be taxed this survey discusses how capital should be taxed in advanced economies we review the theoretical optimal tax literature survey empirical studies on the distribution of capital and the distortion

optimal incentives for labor force participation abstract optimal taxation is analyzed under a rawlsian criterion in an economy where the only decision of the agents is to participate or not to the labor force the model allows for heterogeneity both in the agent s productivities and aversions to work at a first best optimal schedule the marginal agent who decides to work pockets all of her productivity while being just compensated for her work aversion when the planner does not observe work aversion financial compensation for work is lower than productivity theory puts little restrictions on the shape of the optimal tax schedules the usual first order conditions involving the elasticities of participation only apply for sufficiently regular economies we qualitatively show how the optimal incentive schemes depend on the underlying structure of the preferences 100 marginal tax rates or subsidies to work are related to specific features of the economies

personal income tax reforms a genetic algorithm approach given a settled reduction in the present level of tax revenue and by exploring a very large combinatorial space of tax structures in this paper we employ a genetic algorithm in order to determine the best structure of a real world personal income tax that allows for the maximisation of the redistributive effect of the tax while preventing all taxpayers being worse off than with the present tax structure we take italy as a case study

how elastic are preferences for redistribution evidence from randomized survey experiments we analyze randomized online survey experiments providing interactive customized information on us income inequality the link between top income tax rates and economic growth and the estate tax the treatment has large effects on views about inequality but only slightly moves tax and transfer policy preferences an exception is the estate tax informing respondents of the small share of decedents who pay it doubles support for it the small effects for all other policies can be partially explained by respondents low trust in government and a disconnect between concerns about social issues and the public policies meant to address them jel d31 d72 h23 h24

5 information impact and allocation rules in auctions with affiliated private values a laboratory study in affiliated private value auctions each bidder has perfect information regarding his her own value for the object at auction but higher values of the item for one bidder make higher values for other bidders more likely we report on a series of experiments examining three key implications of these auctions i in a first price auction public information about rivals values increases expected revenue ii an english auction increases expected revenue compared to a first price auction and iii a second price auction is isomorphic to an english auction in examining these issues we compare predictions of some ad hoc bidding models with nash equilibrium predictions in the first price auction experiments nash equilibrium bidding theory organizes the data better than either of two ad hoc bidding models public information about others valuations does increase average revenue but the increase in revenue is smaller and less reliable than predicted under risk neutral nash equilibrium bidding lower average revenue might be attributed to risk aversion while the high variability is attributed to a sizable frequency of individual bidding errors relative to the theory bidding theory precisely organizes english auction outcomes after a brief initial learning period the dominant strategy equilibrium does not organize second price auctions nearly as well as market prices persistently exceed predicted prices the difference between english and second price outcomes is attributed to effects of different information flows inherent in the structure of the two institutions on eliminating bidding errors revenue impacts of these two institutions relative to a first price auction are examined in light of observed bidding patterns

a theory of optimal inheritance taxation this paper derives optimal inheritance tax formulas that a capture the key equityeciency trade o b are expressed in terms of estimable sucient statistics c are robust to the underlying structure of preferences we consider dynamic stochastic models with general and heterogeneous bequest tastes and labor productivities we limit ourselves to simple but realistic linear or two bracket tax structures to obtain tractable formulas we show that long run optimal inheritance tax rates can always be expressed in terms of distributional parameters aggregate behavioral elasticities and social preferences for redistribution importantly those results carry over with tractable modications to a the case with social discounting instead of steady state welfare maximization b the case with partly accidental bequests c the standard barro becker dynastic model in all cases the optimal inheritance tax rate increases with the concentration of bequest received and decreases with the elasticity of aggregate bequests to the net of tax rate the optimal tax rate is positive and quantitatively large if concentration is high the elasticity is low and society cares mostly about those receiving little inheritance in contrast the optimal tax rate is negative when society cares mostly about inheritors we propose a calibration using micro data for france and the united states we nd that for realistic parameters

the value of tax progressivity evidence from survey experiments abstract the aim of this paper is to investigate how people value tax progressivity more precisely i study the potential trade off between any improvement in the final income distribution and the progressivity of the tax schedule to do this i designed survey experiments in which respondents were asked to rank or to choose between different taxation redistribution schemes with different treatments varying in terms of information availability 1 when only information about final incomes is provided and 2 when information about average tax rates is also available using a within subject design the instability of rankings between 1 and 2 indicates whether or not respondents value tax progressivity i find that information about tax rates significantly affects respondents judgments about tax schemes they exhibit a strong preference for tax progressivity i e they accept a fall in the quality of the final income distribution in exchange for progressive taxation the results of an additional treatment suggest that the mere fact of providing new information cannot account for this finding

incentive compatibility in signaling games with a continuum of types on donne deux resultats utiles pour demontrer l existence et pour caracteriser des equilibres de separation dans des jeux de signalement

how did distributional preferences change during the great recession abstract to better understand how support for redistributive policies is shaped by macroeconomic shocks we explore how distributional preferences changed during the recent great recession we conducted identical modified dictator games during both the recession and the preceding economic boom the experiments capture subjects selfishness the weight on one s own payoff and equality efficiency tradeoffs concerns for reducing differences in payoffs versus increasing total payoffs which we then compare across economic conditions subjects exposed to recession exhibit greater selfishness and higher emphasis on efficiency relative to equality reproducing recessionary conditions inside the laboratory by confronting subjects with possible negative payoffs weakly intensifies selfishness and increases efficiency orientation bolstering the interpretation that differing economic circumstances drive our results

do auctioneers pick optimal reserve prices we investigate how auctioneers set reserve prices in auctions a well established theoretical result assuming risk neutrality of the seller is that the optimal reserve price should not depend on the number of participating bidders in a set of controlled laboratory experiments we find that seller behavior often deviates from the theoretical benchmarks we extend the existing theory to explore three alternative explanations for our results risk aversion anticipated regret and probability weighting after fitting our data to each of these models through parameter estimation techniques on both an aggregate and individual level we find that all three models are consistent with some of the characteristics of our data but that the regret model provides a slightly more favorable fit overall this paper was accepted by teck hua ho decision analysis

social mobility and redistributive politics just like economists voters have conflicting views about redistributive taxation because they estimate its incentive costs differently we model rational agents as trying to learn from their dynastic income mobility experience the relative importance of effort and predetermined factors in the generation of income inequality and therefore the magnitude of these incentive costs in the long run left wing dynasties believing less in individual effort and voting for more redistribution coexist with right wing dynasties this allows us to explain why individual mobility experience and not only current income matters for political attiitudes and how persistent differences in perceptions about social mobility can generate persistent differences in redistribution across countries

do americans want to tax wealth evidence from online surveys abstract a vast theoretical literature in public finance has studied the desirability of capital taxation this discussion largely ignores the political feasibility of taxing wealth we provide to our knowledge the first investigation of individuals preferences over jointly taxing income and wealth we provide subjects with a set of hypothetical individuals incomes and wealth and elicit subjects preferred absolute tax bill for each individual our method allows us to unobtrusively map both income earned and accumulated wealth into desired tax levels our regression results yield roughly linear desired tax rates on income of about 14 respondents suggested tax rates indicate positive desired wealth taxation when we distinguish between sources of wealth we find that in line with recent theoretical arguments subjects implied tax rate on wealth is 3 when the source of wealth is inheritance far higher than the 0 8 rate when wealth is from savings textual analysis of respondents justifications for their tax rates imply limited concern for the elasticity of tax bases with respect to net of tax rates

the marginal cost of public funds hours of work versus labor force participation this paper extends the theory and measurement of the marginal cost of public funds mcf to account for labor force participation responses our work is motivated by the emerging consensus in the empirical literature that extensive participation responses are more important than intensive hours of work responses in the modelling of extensive responses we argue that it is crucial to account for the presence of non convexities created by fixed work costs in a non convex framework tax and transfer reforms give rise to discrete participation responses generating first order effects on government revenue these revenue effects make the marginal cost of funds higher and we show numerically that the implications for mcf tend to be substantial

optimal taxation when people do not maximize well being abstract i derive the optimal nonlinear income tax when individuals do not necessarily maximize their own well being this generates a corrective argument for taxation optimal marginal taxes are higher lower if individuals work too much too little from a well being point of view i allow for multidimensional heterogeneity and derive the optimal tax schedule in terms of measurable sufficient statistics one of these statistics measures the degree to which individuals fail to optimize their labor supply i empirically estimate this by using british life satisfaction data as a measure of well being i find that low income workers tend to work too little and high income workers too much providing a motive for lower marginal tax rates at the bottom and higher marginal tax rates at the top of the income distribution

the new economics of regulation ten years after the new economics of regulation is an application of the principal agent methodology to the contractual relationship between regulators and regulated firms after a critique of the traditional paradigms of regulation from the point of view of information economics a canonical model of regulation under asymmetric information is developed a survey of the main results obtained in the new economics of regulation is then provided in particular concerning the implementation of optimal contracts by a menu of linear contracts the dichotomy between pricing and cost reimbursement rules the auctioning of incentive contracts the dynamics of contracting under limited commitment and the hierarchical problems in regulation empirical implications are then discussed and avenues of further research are described in the conclusion

revealing preferences graphically an old method gets a new tool kit because uncertainty is endemic in a wide variety of economic circumstances models of decision making under uncertainty play a key role in every field of economics the standard model of decisions under uncertainty is based on von neumann and morgenstern expected utility theory eut so it is natural that experimentalists should want to test the empirical validity of the savage axioms on which eut is based empirical violations of eut provoke intriguing questions about the rationality of individual behavior and at the same time raise criticisms about the status of the savage axioms as the touchstone of rationality these criticisms have generated the development of various theoretical alternatives to eut and the investigation of these theories has led to new empirical regularities for the most part these experimental investigations use several pairwise choices a la allais to test eut and its various alternatives such as weighted utility implicit expected utility and prospect theory among others each of these theories gives rise to indifference curves with distinctive shapes in some part of the marschak machina probability triangle so each theory can be tested against the others by choosing alternatives that the various theories rank differently in these studies the criterion used to evaluate a theory is the fraction of choices it predicts correctly generally speaking experimental work has on the one hand collected only a few decisions from each subject and on the other presented subjects with a serious of choices designed to compare the predictive abilities of competing theories or discover violations of specific axioms colin f camerer 1995 and chris starmer 2000 review the experimental and theoretical work that focuses on evaluating non eut theories although this practice is understandable given the purposes for which the experiments were designed critics say that it limits the usefulness of the data for other purposes first while these experiments reveal that violations exist they give us little sense of how important they are or how frequently they

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

optimal non linear income taxation for the alleviation of income poverty there has been much discussion recently of structuring tax and transfer programs to ensure that resources go to the poor with minimal leaks to the nonpoor the poor have no incentive to earn income with 100 percent marginal tax rates but how high or low the marginal rate of taxation should be and how they should vary with income is a complex issue and opinions vary social security schemes that withdraw benefits represent an extremely high effective marginal tax rate other schemes call for relatively low marginal tax rates at the bottom of the income distribution which tax transfer schedule does most to reduce poverty the issue is one of optimal nonlinear income taxation the authors show that one of the key theoretical results of the welfarist literature is overturned if it is desirable for everybody to work the optimal marginal tax rate on the very poorest individuals is strictly negative they argue that the nonwelfarist perspective points toward lower marginal tax rates in the lower part of the income distribution than does the welfarist perspective but numerical simulations suggest that the effect is of limited quantitative significance using conventional functional forms and parameter values optimal marginal tax rates on the poor are in the 60 70 percent range

comment on positive and normative judgments implicit in u s tax policy and the costs of unequal growth and recessions by benjamin lockwood and matthew weinzierl

supply constrained equilibria in economies with indexed prices abstract in an exchange economy prices are rigid and the prices are restricted by index functions the indexes can be of a general type and can be different for each commodity indexed prices can appear in other indexes also considered are restrictions in terms of a general price index existence of a dreze equilibrium and particularly a supply constrained dreze equilibrium is proved the system of indexes must be solvable in terms of unconstrained prices and for the unconstrained commodities a monotonicity condition must hold

risk aversion and the winner s curse this article analyzes an auction in which bidders see independent components of a common prize value the nash equilibrium for two rational bidders is shown to be independent of risk attitudes the information structure allows explicit calculation of an alternative equilibrium in which naive bidders do not correctly discount the value of the prize contingent on winning and thus they suffer the winner s curse subjects in a laboratory experiment clearly fall prey to the winner s curse the data conform most closely to the predictions of the naive model moreover the level of risk aversion implied by fitting the naive model is similar to an independent risk aversion measure obtained in a separate private value bidding exercise

subjective probabilities in games an application to the overbidding puzzle this article illustrates how the joint elicitation of subjective probabilities and preferences may help us understand behavior in games we conduct an experiment to test whether biased probabilistic beliefs may explain overbidding in first price auctions the experimental outcomes indicate that subjects underestimate their probability of winning the auction and indeed overbid when provided with feedback on the precision of their predictions subjects learn to make better predictions and to curb significantly overbidding the structural estimation of different behavioral models suggests that biased probabilistic beliefs are a driving force behind overbidding and that risk aversion plays a lesser role than previously believed

equal sacrifice and incentive compatible income taxation abstract the concepts of equal sacrifice and incentive compatibility in income taxation have been of interest to economists for some time here we attempt to integrate the two literatures in a model that offers a labor leisure choice to consumers while imposing an equal relative or absolute sacrifice tax system the main result is that equal sacrifice incentive compatible income tax systems generally exist and are locally unique examples are presented where this tax system is easy to compute comparative statics are calculated finally some remarks about the welfare properties of these tax systems are made

the elasticity of taxable income with respect to marginal tax rates a critical review this paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates using tax return data first we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis we discuss what other parameters should be estimated when the elasticity is not a sufficient statistic second we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the united states to illustrate those issues third we provide a critical discussion of selected empirical analyses of the elasticity of taxable income in light of the theoretical and empirical framework we laid out finally we discuss avenues for future research jel h24 h31 j22

distributive justice in taxation abstract a classical criterion for apportioning taxes is that all should sacrifice equally in loss of utility suppose that a method of apportioning taxes is continuous and has the following four properties i the way that taxpayers split a given tax total depends only on their own taxable incomes ii an increase in the tax total implies that everyone pays more iii every incremental increase in tax is apportioned according to taxpayers current after tax incomes iv the ordering of taxpayers by pre tax income and after tax income is the same then there exists a utility function relative to which all sacrifice equally

risk averse behavior in generalized matching pennies games in experimental studies of behavior in 2 2 games with unique mixed strategy equilibria observed choice frequencies are systematically different from mixed strategy nash predictions this paper examines experimental results for a variety of such games and shows that a structural econometric model which incorporates risk aversion into a quantal response equilibrium explains the data very well moreover risk aversion estimates are stable across the different games and are close to those obtained from laboratory and field auction data as well as from individual lottery choice experiments

a new measure of horizontal equity in this paper we propose a new measure of horizontal equity that overcomes many of the shortcomings of previous proposed measures our starting point is the observation that a well behaved social welfare function need not evaluate global vertical equity differences in after tax income using the same weights it applies to local horizontal equity differences even though this constraint has been applied in the past following work on the structure of individual preferences we show that a social welfare function can imply different preferences toward horizontal and vertical equity adopting the general approach to the measurement of inequality developed by atkinson 1970 we use such a social welfare function to derive measures of inequality that are decomposable into components naturally interpreted as indices of horizontal and vertical equity in particular the former index measures deviations from the fundamental principle that equals be treated equally finally we apply our new measure to two tax return data sets evaluating the degree to which the horizontal equity of the us personal income tax has changed over time and how horizontal equity would be altered by one version of recent proposals to do away with the so called marriage penalty this abstract was borrowed from another version of this item

out of equilibrium bids in first price auctions wrong expectations or wrong bids deviations from risk neutral equilibrium bids in auctions can be related to inconsistent expectations with correct best replies or correct expectations but deviant best replies e g because of risk aversion regret quantal response mistakes to distinguish between these two explanations we use a novel experimental procedure and study expectations together with best replies in symmetric and asymmetric auctions we extensively test the internal validity of this setup we find that deviations from equilibrium bids do not seem to be because of to wrong expectations but because of deviations from a risk neutral best reply

a simpler theory of optimal capital taxation abstract this paper develops a theory of optimal capital taxation that expresses optimal tax formulas in sufficient statistics we first consider a simple model with utility functions linear in consumption and featuring heterogeneous utility for wealth in this case there are no transitional dynamics the steady state is reached immediately and has finite elasticities of capital with respect to the net of tax rate this allows for a tractable optimal tax analysis with formulas expressed in terms of empirical elasticities and social preferences that can address many important policy questions these formulas can easily be taken to the data to simulate optimal taxes which we do using u s tax return data on labor and capital incomes second we show how these results can be extended to the case with concave utility for consumption the same types of formulas carry over by appropriately defining elasticities we show that one can recover all the results from the simpler model using a new and non standard steady state approach that respects individual preferences even with a fully general utility function

optimal taxation and insurance using machine learning sufficient statistics and beyond abstract how should one use quasi experimental evidence when choosing policies such as tax rates health insurance copay unemployment benefit levels and class sizes in schools this paper suggests an approach based on maximizing posterior expected social welfare combining insights from i optimal policy theory as developed in the field of public finance and ii machine learning using gaussian process priors we provide explicit formulas for posterior expected social welfare and optimal policies in a wide class of policy problems the proposed methods are applied to the choice of coinsurance rates in health insurance using data from the rand health insurance experiment the key trade off in this setting is between transfers toward the sick and insurance costs the key empirical relationship the policy maker needs to learn about is the response of health care expenditures to coinsurance rates holding the economic model and distributive preferences constant we obtain much smaller point estimates of the optimal coinsurance rate 18 vs 50 when applying our estimation method instead of the conventional sufficient statistic approach

on the efficiency of equal sacrifice income tax schedules abstract in an economy which primitives are exactly those in mirrlees 1971 we investigate the efficiency of tax schedules derived under the equal sacrifice principle for a given exogenous government consumption level we assess whether there is an alternative tax schedule that raises more revenue while delivering less utility to no one for our preferred parametrizations we find that inefficiency only arises at the top of the income distribution for marginal tax rates well above the ones we currently observe in most countries we also recover the implicit marginal social weights associated with the equal sacrifice schedule and find them not to be monotonic in types for the environments we study

on the optimal provision of social insurance progressive taxation versus education subsidies in general equilibrium in this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk but distort the education decision of households optimally chosen tertiary education subsidies mitigate these distortions we highlight the quantitative importance of general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers subsidizing higher education increases the share of workers with a college degree thereby reducing the college wage premium which has important redistributive benefits we also argue that a full characterization of the transition path is crucial for policy evaluation we find that optimal education policies are always characterized by generous tuition subsidies but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium

theory and misbehavior in first price auctions comment in his recent paper in this review glenn harrison 1989 argues that the conclusions of james cox et al 1982 1983 1985 1988 in their studies of first price private value auctions are not well supported because of shortcomings in the way their experimental investigations were designed analyzed and reported harrison argues that the expected cost of deviations from risk neutral nash equilibrium rnne bidding in these auctions was quite small less than 0 05 at the median so that in terms of expected monetary payoffs payoff space many subjects had little to lose from deviating from the rnne strategy harrison suggests that the significance of the differences cox vernon smith and james walker hereafter csw report between subjects bids and the rnne bids deviations in the message space may therefore need to be reexamined in discussing harrison versus csw we have three primary points to make first in arguing that it is more natural to evaluate subject behavior in expected payoff space harrison 1989 p 749 we think harrison has overstated his case however we agree with his more important point that looking at the cost of deviations is a useful diagnostic tool for determining when experimenters are likely to have lost control over subjects incentives further as we will show in section i this part of harrison s critique applies with special force to csw s studies of bidding second a broader examination of the results of private value auction experiments indicates that risk aversion cannot be the only factor and may well not be the most important factor behind bidding above the rnne found so often in first price privatevalue auctions the most telling evidence here is bidding above the dominant bid price found in second price auctions kagel et al 1987 kagel and levin 1990 and the risk loving found under several treatment conditions in csw s 1984 own multipleunit discriminative auctions auctions in which the high bidders pay their bid price these and other data inconsistent with risk averse bidding are largely ignored in csw 1988 but are nevertheless relevant to the substantive issue of risk aversion in private value auctions they are discussed in section ii third there are data gathered in other investigations which provide strong support for the view that the deviations from rnne bidding reported in first price auctions are not the results of the low expected cost of such deviations however these data unlike the higher stakes payoff data that csw offer in response to harrison are not consistent with csw s subsidiary conclusions that the data can be well accounted for by a narrow class of risk aversion parameters for the bidders together with the assumption that all agents are playing a nash equilibrium of the resulting game of incomplete information a key difference between these experiments and csw s is that if subjects do not respond to csw s treatment condition increasing the payoffs from experimental to u s dollars their behavior will be consistent with csw s theory in contrast department of economics university of pittsburgh pittsburgh pa 15260 we thank jack ochs and emilie roth for thoughtful discussions on earlier drafts of the paper jim cox and glenn harrison for helpful comments on the initial draft of the paper susan garvin for research assistance and ray battalio carl kogut and don meyer for providing us with access to their data research support was provided by the information science and technology and economics divisions of the national science foundation the alfred p sloan foundation and the russell sage foundation the usual caveat applies with special force iwe do not respond to specific comments that csw 1992 make in response to our comment as in order to avoid indefinite regress the ground rules for this debate required us to comment on csw s criticism of harrison after which they would be given the opportunity to respond to our comment

nonlinear behavior in sealed bid first price auctions the extent to which the behavior of people is consistent with game theoretic principles is investigated in a first price sealed bid auction environment three linear rules of thumb with increasing complexity are used as benchmarks to gauge the accuracy of the constant relative risk aversion model crram in addition the crram is tested against the relaxation of the rational expectation hypothesis existing competitive bidding experiments cannot clearly distinguish between game theoretic models and linear markdown rules on an individual level within the parametric environments studied and reported in the experimental literature game theoretic solutions are linear over the range of private values in which bid functions are estimated in this study agents drew values from non uniform distributions as a result the game theoretic bidding behavior is nonlinear due to the nonlinearity special econometric and numerical techniques are applied to solve the model and obtain the estimates the crram exhibits good fit of the data the pseudo r2 is greater than 0 8 in 90 percent of the subjects the crram is more accurate than the markdown model mm and the simple ad hoc model simam but not as accurate as the sophisticated ad hoc model sop am the data also supports the relaxation of the rational expectation hypothesis and suggests that substantial increases in the predictive power of game theoretic models can be gained from improvements in the theory of belief formation

should sellers prefer auctions a laboratory comparison of auctions and sequential mechanisms when bidders incur a cost to learn their valuations bidder entry can impact auction performance two common selling mechanisms in this environment are an english auction and a sequential bidding process theoretically sellers should prefer the auction because it generates higher expected revenues whereas bidders should prefer the sequential mechanism because it generates higher expected bidder profits we compare the two mechanisms in a controlled laboratory environment varying the entry cost and find that contrary to the theoretical predictions average seller revenues tend to be higher under the sequential mechanism whereas average bidder profits are approximately the same we identify three systematic behavioral deviations from the theoretical model 1 in the auction bidders do not enter 100 of the time 2 in the sequential mechanism bidders do not set preemptive bids according to the predicted threshold strategy and 3 subsequent bidders tend to overenter in response to preemptive bids by first bidders we develop a model of noisy bidder entry costs that is consistent with these behaviors and we show that our model organizes the experimental data well data as supplemental material are available at http dx doi org 10 1287 mnsc 2013 1800

individual behavior of first price auctions the importance of information feedback in computerized experimental markets abstract this article reports the results of an individual choice experiment designed to test the nash equilibrium predictions of the first price sealed bid auction a subject faced in 100 auctions always the same resale value and competed with computer simulated bids the design used between subjects variation and involved information feedback as the treatment variable earlier experimental work on first price auctions has frequently reported an overbidding relative to the risk neutral nash equilibrium our data provide evidence that overbidding can be fostered by the standard information feedback in auction experiments which after each auction reveals the winning bid only by means of learning direction theory we explain the individual bidding dynamics in our experiment finally we apply impulse balance theory and make long run predictions of individual bidding behavior

the promise of positive optimal taxation normative diversity and a role for equal sacrifice abstract a prominent assumption in modern optimal tax research is that the objective of taxation is utilitarian i present new survey evidence that most people reject this assumption s implications for several prominent features of tax policy instead preferring tax policies based at least in part on a classic alternative objective the principle of equal sacrifice i generalize the standard model to accommodate this preference for a mixed objective proposing a method by which to make disparate criteria commensurable while respecting pareto efficiency then i show that optimal policy in this generalized model calibrated to the survey evidence and u s microdata is capable of quantitatively matching several features of existing tax policy that are incompatible in the conventional model but widely endorsed in the survey and reality including the coexistence of substantial redistribution and limited tagging together these findings demonstrate the potential of a positive theory of optimal taxation

price formation in a sequential selling mechanism abstract this paper studies a dynamic trade institution where an auction is combined with a buy it now option this option presents a take it or leave it price offered by the seller to a potential buyer before the auction if the buyer rejects this buyout price the object is auctioned off in equilibrium sales should take place only in the auction an experimental test reveals that average buyout prices and profits are well captured by the theoretical prediction however a substantial amount of sales takes place before the auction this is caused by offering too low or accepting too high buyout prices we discuss alternative explanations such as risk preferences and wrong formation of beliefs that might account for agents behavior

redistributive effects of minimal equal sacrifice taxation we examine the circumstances under which minimal equal sacrifice taxation reduces income inequality focusing on absolute sacrifice and relative inequality we show that after tax incomes are more equally distributed than before tax incomes and that after tax inequality decreases with the revenue to be raised if and only if the elasticity of the marginal utility of income is decreasing however other things equal after tax inequality is shown to decline as the utility function becomes more concave we investigate next how these conclusions extend when one takes the absolute inequality view and considers that it is the relative loss in utility that has to be equalized across individuals

risk aversion and wealth evidence from person to person lending portfolios we estimate risk aversion from investors financial decisions in a person to person lending platform we develop a method that obtains a risk aversion parameter from each portfolio choice since the same individuals invest repeatedly we construct a panel data set that we use to disentangle heterogeneity in attitudes toward risk across investors from the elasticity of risk aversion to changes in wealth we find that wealthier investors are more risk averse in the cross section and that investors become more risk averse after a negative housing wealth shock thus investors exhibit preferences consistent with decreasing relative risk aversion and habit formation data as supplemental material are available at http dx doi org 10 1287 mnsc 2015 2317 this paper was accepted by amit seru finance

economists interest in collective decision after world war ii a history this paper tracks economists rising yet elusive and unstable interest in collective decision mechanism after world war ii we replace their examination of voting procedures and social welfare functions in the 1940s and 1950s in the context of their growing involvement with policy making confronted with natural scientists and mccathythes accusations of ideological bias positive studies emphasizing that collective decisions mechanisms were unstable and inefficient and normative impossibilities economists largely relied on the idea the policy ends they worked with reflected a social consensus as the latter crumbled in the 1960s growing disagreement erupted on how to identify and aggregate those individual values which economists believed should guide applied work in particular in cost benefit analysis the 1970s and 1980s brought new approaches to collective decision arrow s impossibility was solved by expanding the informational basis it was showed that true preferences could be revealed by making decision costly and experimentalists and market designers enabled these mechanisms to be tested in the lab before being sold to those public bodies looking for decision procedures that emulated markets in this new regime the focus paradoxically shifted to coordination revelation and efficiency and those economists studying collective decision processes were marginalized

sealed bid auctions with ambiguity theory and experiments this study presents a laboratory experiment of the first and second price sealed bid auctions with independent private values where the distribution of bidder valuations may be unknown in our experimental setting in first price auctions bids are lower with the presence of ambiguity this result is consistent with ambiguity loving in a model that allows for different ambiguity attitudes we also find that the first price auction generates significantly higher revenue than the second price auction with and without ambiguity

sympathy for the diligent and the demand for workfare abstract we study the role of fairness concerns in the demand for redistribution through workfare in the first part of the paper we present new evidence from a survey we show that individuals are more generous towards poor people whom they perceive to be diligent workers relative to poor people whom they perceive to be non diligent a social preference that we label sympathy for the diligent this preference is much stronger than preferences regarding other characteristics of the poor such as race nationality and disability more important we show that subjects with higher sympathy for the diligent have a stronger preference for workfare programs in the second part of the paper we incorporate our empirical findings into a model of income redistribution we consider the case of a benevolent government with fairness concerns that prioritizes the well being of individuals who exert the most effort we characterize the optimal conditions under which the government introduces work requirements even if wasteful work requirements can be optimal because they allow for a better distinction between individuals who exert great effort and individuals who do not however if the government lacks commitment power the availability of screening through work requirements leads to a lower equilibrium effort and possibly a pareto dominated allocation

a sceptic s comment on the study of economics a survey was carried out among two groups of undergraduate economics students and four groups of students in mathematics law philosophy and business administration the main survey question involved a conflict between profit maximisation and the welfare of the workers who would be fired to achieve it significant differences were found between the choices of the groups the results were reinforced by a survey conducted among readers of an israeli business newspaper and phd students of harvard it is argued that the overly mathematical methods used to teach economics encourage students to lean towards profit maximisation

the case for a progressive tax from basic research to policy recommendations the fair distribution of the tax burden has long been a central issue in policyhe fair distribution of the tax burden has long been a central issue in policymaking a large academic literature has developed models of optimal tax making a large academic literature has developed models of optimal tax theory to cast light on the problem of optimal tax progressivity in this theory to cast light on the problem of optimal tax progressivity in this paper we explore the path from basic research results in optimal tax theory to paper we explore the path from basic research results in optimal tax theory to formulating policy recommendations formulating policy recommendations models in optimal tax theory typically posit that the tax system should maximize a models in optimal tax theory typically posit that the tax system should maximize a social welfare function subject to a government budget constraint taking into account social welfare function subject to a government budget constraint taking into account that individuals respond to taxes and transfers social welfare is larger when resources that individuals respond to taxes and transfers social welfare is larger when resources are more equally distributed but redistributive taxes and transfers can negatively are more equally distributed but redistributive taxes and transfers can negatively affect incentives to work save and earn income in the fi rst place this creates the clasaffect incentives to work save and earn income in the fi rst place this creates the classical trade off between equity and effi ciency which is at the core of the optimal income sical trade off between equity and effi ciency which is at the core of the optimal income tax problem in general optimal tax analyses maximize social welfare as a function of tax problem in general optimal tax analyses maximize social welfare as a function of individual utilities the sum of utilities in the utilitarian case the marginal weight for individual utilities the sum of utilities in the utilitarian case the marginal weight for a given person in the social welfare function measures the value of an additional dollar a given person in the social welfare function measures the value of an additional dollar of consumption expressed in terms of public funds such welfare weights depend on of consumption expressed in terms of public funds such welfare weights depend on the level of redistribution and are decreasing with income whenever society values the level of redistribution and are decreasing with income whenever society values more equality of income therefore optimal income tax theory is fi rst a normative more equality of income therefore optimal income tax theory is fi rst a normative theory that shows how a social welfare objective combines with constraints arising from theory that shows how a social welfare objective combines with constraints arising from limits on resources and behavioral responses to taxation in order to derive specifi c limits on resources and behavioral responses to taxation in order to derive specifi c

consistency and heterogeneity of individual behavior under uncertainty by using graphical representations of simple portfolio choice problems we generate a very rich dataset to study behavior under uncertainty at the level of the individual subject we test the data for consistency with the maximization hypothesis and we estimate preferences using a two parameter utility function based on faruk gul 1991 this specification provides a good interpretation of the data at the individual level and can account for the highly heterogeneous behaviors observed in the laboratory the parameter estimates jointly describe attitudes toward risk and allow us to characterize the distribution of risk preferences in the population

social preferences self interest and the demand for redistribution preferences for redistribution may be influenced by values and beliefs about distributive justice as well as by self interest people may prefer more redistribution to the poor if they believe that poverty is caused by circumstances beyond individual control therefore beliefs about the causes of income may affect demand for redistribution alternatively the effect of these beliefs on redistributive preferences may be spurious if they are correlated with income and self interest is not properly controlled for they may also measure incentive cost concerns using social survey data i find that self interest cannot explain the effect of these beliefs on redistributive preferences 2001 elsevier science b v all rights reserved

asymmetric information about rivals types in standard auctions an experiment this paper studies experimentally how information about rivals types affects bidding behavior in firstand second price auctions the comparative static hypotheses associated with information about rivals enables us to test the relevance of such information as well as the general predictions of the auction theory by providing an effective means to control for risk aversion and other behavioral motives that were difficult to control for in previous experiments our experimental evidence provides strong support for the theory and sheds light on the roles of risk aversion and the spite motive in first and second price auctions respectively

to what extent do fiscal regimes equalize opportunities for income acquisition among citizens to what extent do fiscal regimes equalize opportunities for income aquisition among citizens journal of public economics

star shaped probability weighting functions and overbidding in first price auctions there is a debate about whether risk aversion is the main source of overbidding in a first price independent private values auction as an alternative we adopt a non expected utility framework and identify an interpretable property on the probability weighting function which always induces overbidding

optimal redistribution with endogenous social norms in this paper we examine the effect of social norms on redistributive policies where social norms are reflected in the degree of work participation among the different skill classes participation is driven both by the material incentives and heterogeneous preferences for leisure of each skill class and by an endogenous social norm results for optimal redistributive taxation show that when the social norm enters as a benefit or cost for participants participation taxes are generally lower than in its absence multiple participation equilibria can occur and an engineered shift from a low to a high participation equilibrium can be pareto improving in the long run

redistribution and pollution taxes with non linear engel curves abstract this paper analyses optimal corrective taxation and optimal income redistribution the pigouvian pollution tax is higher if pollution damages disproportionally hurt the poor due to equity weighting of pollution damages moreover under general utility functions optimal pollution taxes should be set below the pigouvian tax if the poor spend a disproportionate fraction of their income on polluting goods however if engel curves are linear optimal pollution taxes should follow the first best rule for the pigouvian corrective tax even if the government wants to redistribute income and the poor spend a disproportional part of their income on polluting goods the often used quasi linear ces and stone geary utility functions all have linear engel curves if engel curves are linear and if pollution taxes are not optimised pareto improving green tax reforms exist that move the pollution tax closer to the pigouvian tax simulations demonstrate that optimal corrective taxes should be pigouvian if the demand for polluting goods is derived from a les demand system but deviate from the pigouvian taxes if demand for polluting goods demand is derived from a piglog demand system

outside options another reason to choose the first price auction abstract in this paper we study equilibrium and experimental bidding behaviour in first price and second price auctions with outside options we find that bidders do respond to outside options and to variations of common knowledge about competitors outside options however overbidding in first price auctions is significantly higher with outside options than without first price auctions yield more revenue than second price auctions this revenue premium is significantly higher with outside options in second price auctions the introduction of outside options has only a small effect

generalized social marginal welfare weights for optimal tax theory this paper proposes to evaluate tax reforms by aggregating money metric losses and gains of different individuals using generalized social marginal welfare weights optimum tax formulas take the same form as standard welfarist tax formulas by simply substitut ing standard marginal social welfare weights with those generalized weights weights directly capture society s concerns for fairness without being necessarily tied to individual utilities suitable weights can help reconcile discrepancies between the welfarist approach and actual tax practice as well as unify in an operational way the most prominent alternatives to utilitarianism such as libertarianism equality of opportunity or poverty alleviation jel d60 d63 h21 h23 i38