the winners and losers of tax reform an assessment under financial integration abstract i quantify the macroeconomic and redistributive effects of the unilateral elimination of the capital income tax in a two country heterogeneous agent incomplete markets model with progressive labor income taxes home by implementing the reform induces government responses where labor income is taxed in home and mostly subsidized in foreign in addition post reform price dynamics reduce home s wealth and suppress households ability to do consumption smoothing with negative effects on the majority particularly on the poor in turn foreign accumulates wealth and price movements work particularly in favor of the poor as a result a large majority in home prefers the status quo whereas foreign supports the reform unanimously these findings are robust to alternative scenarios where i the borrowing constraints are relaxed ii both countries jointly eliminate capital income taxes iii foreign interest income is taxed and iv home capital income tax is reduced from 40 to 35

trust trustworthiness and information sharing in supply chains bridging china and the united states whether and how trust and trustworthiness differ between a collectivist society e g china and an individualistic one e g the united states generates much ongoing scientific debate and bears significant practical values for managing cross country transactions we experimentally investigate how supply chain members countries of origin china versus the united states affect trust trustworthiness and strategic information sharing behavior in a cross country supply chain we consider a two tier supply chain in which the upstream supplier solicits demand forecast information from the retailer to plan production but the retailer has an incentive to manipulate her forecast to ensure abundant supply the levels of trust and trustworthiness in the supply chain and supplier s capability to determine the optimal production quantity affect the efficacy of forecast sharing and the resulting profits we develop an experimental design to disentangle these three aspects and to allow for real time interactions b

productivity differences across employers the roles of employer size age and human capital recent research using longitudinal microeconomic databases on businesses and individuals has uncovered tremendous heterogeneity across businesses even within narrowly defined industrial sectors we observe large differences in the levels and growth rates of inputs outputs and productivity across workers even controlling for demographic characteristics wage and employment outcomes vary a great deal and there are sizable worker flows across jobs in the economy these worker flows are closely connected to firm outcomes reflecting in large part the ongoing shift in resources from less productive to more productive employers the primary message is that the continual process of matching and sorting as businesses and workers seek their niches is heterogeneous with experimentation learning and selection all playing important roles understanding the connection between the matching and sorting of businesses and workers is at the very heart of the overlap between industrial organization and labor economics however due to the paucity of data linking businesses and workers at the micro level we know relatively little about these interactions although a large empirical literature suggests that worker outcomes are associated with firm characteristics notable examples are firm size wage effects compensating wage differentials and interindustry wage differentials very little is known about the converse the process by which business outcomes are associated with the characteristics of their employees there are a number of questions associated with this process do employers choose different modes of production resulting in skill segregation as suggested by the sorting and assignment hypotheses in michael kremer 1993 and michael sattinger 1993 or do all firms in a given industry select roughly the same workforce composition how do employers change their workforce composition either to accommodate demand shocks or to experiment with new modes of production in turn what is the connection between these different decisions regarding workforce composition and observable business outcomes such as survival growth and productivity in this short paper our empirical objectives are relatively modest compared to these broad research questions our focus is to provide an initial investigation into the connection between a key measure of firm performance labor productivity and the composition of the firm s workforce as measured by observable worker characteristics we exploit longitudinal matched employeremployee micro data developed under a recent pilot project at the u s census bureau our data set contains longitudinal information on key outcomes of the businesses as well as many of the basic demographic characteristics for the universe of workers at these businesses although longitudinal matched employer employee micro data have been developed in a variety of countries over the last decade or so see john abowd and francis kramarz 1999 ours is the first large scale micro level data set in the united states that allows the investigation haltiwanger department of economics university of maryland college park md 20742 u s bureau of the census and nber lane department of economics american university washington dc 20016 and u s bureau of the census spletzer bureau of labor statistics 2 massachusetts ave n e washington dc 20212 we thank adela luque and javier miranda for superb research assistance and charles brown and marilyn manser for comments on an earlier draft this research was conducted at the center for economic studies at the u s bureau of the census while the second author was an american statistical association census bureau fellow the analysis and results are attributable to the authors and do not necessarily reflect concurrence of the institutions they represent

supply chain relationships and contracts the impact of repeated interaction on capacity investment and procurement consider a firm developing an innovative product due to market pressures production must begin soon after the product development effort is complete which requires that an upstream supplier invests in capacity while the design of the product and production process are in flux because the product is ill defined at this point in time the firms are unable to write court enforceable contracts that specify the terms of trade or the supplier s capacity investment however the firms can adopt an informal agreement relational contract regarding the terms of trade and capacity investment the potential for future business provides incentive for the firms to adhere to the relational contract we show that the optimal relational contract may be complex requiring the buyer to order more than her demand to indirectly monitor the supplier s capacity investment we propose a simpler relational contract and show that it performs very well for a broad range of parameters finally we identify characteristics of the business environment that make relational contracting particularly valuable

optimal pricing and return policies for perishable commodities this paper considers the pricing decision faced by a producer of a commodity with a short shelf or demand life a hierarchical model is developed and the results of the single period inventory model are used to examine possible pricing and return policies the paper shows that several such policies currently in effect are suboptimal these include those where the manufacturer offers retailers full credit for all unsold goods or where no returns of unsold goods are permitted the paper also demonstrates that a policy whereby a manufacturer offers retailers full credit for a partial return of goods may achieve channel coordination but that the optimal return allowance will be a function of retailer demand therefore such a policy cannot be optimal in a multi retailer environment it is proven however that a pricing and return policy in which a manufacturer offers retailers a partial credit for all unsold goods can achieve channel coordination in a multi retailer environment this article was originally published in marketing science volume 4 issue 2 pages 166 176 in 1985

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

why hasn t tax competition triggered a race to the bottom some quantitative lessons from the eu abstract the integration of european financial markets in the early 1980s created an environment of near perfect capital mobility across countries that had harmonized indirect taxes but maintained large differences in factor taxes the years that followed witnessed several rounds of competition in capital taxes with puzzling results instead of the dreaded race to the bottom in capital taxes the uk lowered its capital tax to a rate closer to those of france germany and italy while capital taxes changed slightly in these countries the uk increased its labor tax marginally but the other countries increased theirs sharply this paper shows that these results are consistent with the quantitative predictions of a dynamic neoclassical general equilibrium model of tax competition that incorporates the key international externalities of tax policy operating via relative prices wealth distribution and fiscal solvency tax competition is modeled as a one shot game over time invariant capital taxes with dynamic payoffs relative to a status quo calibrated to european data the calibration is preceded by an empirical analysis that shows that the relationship linking taxes to labor supply and the investment rate in the model are in line with empirical evidence and that domestic taxes seem to respond to foreign taxes the solutions of the games show that when countries compete over capital taxes adjusting labor taxes to maintain fiscal solvency there is no race to the bottom and the nash equilibrium is close to observed taxes in contrast if consumption taxes adjust to maintain fiscal solvency competition over capital taxes triggers a race to the bottom but this outcome entails large welfare gains surprisingly the gains from coordination are small in all of these experiments

designing supply contracts contract type and information asymmetry this paper studies the value to a supplier of obtaining better information about a buyer s cost structure and of being able to offer more general contracts we use the bilateral monopoly setting to analyze six scenarios three increasingly general contracts wholesale pricing schemes two part linear schemes and twopart nonlinear schemes each under full and incomplete information about the buyer s cost structure we allow both sides to refuse to trade by explicitly including reservation profit levels for both for the supplier this is implemented through a cutoff policy we derive the supplier s optimal contracts and profits for all six scenarios and examine the value of information and of more general contracts our key findings are as follows first the value of information is higher under two part contracts second the value of offering two part contracts is higher under full information and third the proportion of buyers the supplier will choose to exclude can be substantial

the relational advantages of intermediation this paper provides a novel explanation for the use of supply chain intermediaries we find that even in the absence of the well known transactional and informational advantages of mediation inter

inventories and the concentration of suppliers and customers evidence from the chinese manufacturing sector this study investigates the links between supplier and customer base concentrations and inventory holdings in the chinese manufacturing sector using financial data from a cohort of 516 companies we find that firms that face higher supplier density benefiting from better co ordination with suppliers hold fewer inventories whereas firms with higher customer density retain larger inventories as a result of the bargaining power exercised by customers we then extend the analysis by investigating the impact of account payables receivables and bad debt reserves finding that inventory holdings are positively associated with the two forms of financing and negatively associated with bad debts this last relationship however becomes less severe when firms have access to large volumes of payables finally we show that the above results hold with varying degrees of similarity also when we partition the dataset into six homogenous industrial segments overall this study contributes to the growing literature on inventories and the structure of the supply chain by shedding new light on the importance of both supplier and customer densities as well as the volume of payables and receivables for inventory management

tax competition among u s states racing to the bottom or riding on a seesaw abstract dramatic declines in capital tax rates among u s states and european countries have been linked by many commentators to tax competition an inevitable race to the bottom and underprovision of local public goods this paper analyzes the reaction of capital tax policy in a given u s state to changes in capital tax policy by other states our study is undertaken with a novel panel data set covering the 48 contiguous u s states for the period 1965 to 2006 and is guided by the theory of strategic tax competition the latter suggests that capital tax policy is a function of foreign out of state tax policy preferences for government services and home state and foreign state economic and demographic conditions the slope of the reaction function the equilibrium response of home state to foreign state tax policy is negative contrary to casual evidence and many prior empirical studies of fiscal reaction functions this result which stands in contrast to most published findings is due to two critical elements that allow for delayed responses to foreign tax changes and responses to aggregate shocks omitting either of these elements leads to a misspecified model and a positively sloped reaction function our results suggest that the secular decline in capital tax rates at least among u s states reflects synchronous responses among states to common shocks rather than competitive responses to foreign state tax policy while striking given prior empirical findings these results are fully consistent with the implications of the theoretical model developed in this paper and presented elsewhere in the literature rather than racing to the bottom our findings suggest that states are riding on a seesaw consequently tax competition may lead to an increase in the provision of local public goods and policies aimed at restricting tax competition to stem the tide of declining capital taxation are likely to be ineffective

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

international tax competition and the deficit bias i analyze the dynamic effects of tax competition on public budget deficits i find that stronger tax competition leads to a fiscal deficit bias at the early stages of financial liberalization when countries differ in terms of capital mobility further liberalization leads to external imbalances and diverging fiscal deficits while corporate tax rates converge consistent with theory i find that stronger tax competition increases deficits in a sample of oecd countries controlling for tax revenues and other standard determinants of fiscal deficits jel e62 f62

relational contracts and the theory of the firm relational contracts informal agreements sustained by the value of future relationships are prevalent within and between firms we develop repeated game models showing why and how relational contracts within firms vertical integration differ from those between nonintegration we show that integration affects the parties temptations to renege on a given relational contract and hence affects the best relational contract the parties can sustain in this sense the integration decision can be an instrument in the service of the parties relationship our approach also has implications for joint ventures alliances and networks and for the role of management within and between firms

strategic commitments for an optimal capacity decision under asymmetric forecast information we study the important problem of how to assure credible forecast information sharing between a supplier and a manufacturer the supplier is responsible for acquiring the necessary capacity before receiving an order from the manufacturer who possesses private forecast information for her end product we address how different contracts affect the supplier s capacity decision and hence the profitability of the supplier and the manufacturer we fully develop two contracts and provide explicit formulae to enable credible forecast information sharing the first is a nonlinear capacity reservation contract under which the manufacturer agrees to pay a fee to reserve capacity the second is an advance purchase contract under which the manufacturer is induced to place a firm order before the supplier secures the component capacity used to build the end product these contracts serve a strategic role in information sharing the capacity reservation contract enables the supplier to detect the manufacturer s private forecast information while the advance purchase contract enables the manufacturer to signal her forecast information we show that channel coordination is possible even under asymmetric forecast information by combining the advance purchase contract with an appropriate payback agreement through our structural and numerical results we also show that the degree of forecast information asymmetry and the risk adjusted profit margin are two important drivers that determine supply chain efficiency and which contract to adopt

on the ineffectiveness of tax policy in altering long run growth harberger s superneutrality conjecture abstract in 1964 harberger conjectured that although theory predicts that changes in tax rates affect investment and growth in the long run in practice tax policy is an ineffective instrument to influence growth this paper provides theoretical and empirical evidence in favor of this view the growth effects of tax policy in the class of endogenous growth models driven by human capital accumulation are examined and numerical simulations of these models confirm the results harberger predicted cross country panel regressions estimated using a new method for measuring effective tax rates produce significant investment effects from taxes that are consistent with negligible growth effects these results are robust to the introduction of other growth determinants

managing and reallocating inventory across two markets with local information abstract consider a firm that controls inventory centrally for two separate markets that are managed by regional managers having local demand information the central planner provides a dedicated inventory level to each market to ensure a minimum service level but can reallocate inventory once associated demands are filled how should such a firm solicit regional managers to share their local information so inventory levels can be set efficiently in this paper we study a forecast sharing game in such a firm where demand information lies within regions and inventory is managed by a central decision maker we show that incentives are misaligned and truthful information sharing is not an equilibrium we study two potential ways to improve the system a regional managers directly place orders rather than simply passing demand forecasts or b a pricing scheme for inventory reallocations is imposed we show that under direct ordering a unique pure strategy bayesian nash equilibrium exists and makes retailers place orders based on their true forecasts although the requested order quantities are not system optimal e g some inventory pooling benefits are lost under an endogenous transfer pricing mechanism set by the central planner we find that a first best truth telling equilibrium is possible under certain conditions we conduct a numerical study to examine the different cases and find that when the critical fractile is high direct ordering results in lower inventories while the reverse is true when the critical fractile is low expected profit comparisons show the value of local information

income taxes and the destination of movers to multistate msas abstract we examine how differences in state income tax rates as well as other state and local taxes and public service expenditures influence the choice of state of residence for households federal tax filers moving into multistate metropolitan areas msas using data from the irs on the migration of taxpayers msas that are on borders provide a spatial discontinuity discrete differences in state tax rates within a single labor market these msas allow residents to live in one state and work in another state we find that differences in state income tax rates have a significant impact on the relative rate of migration to the states within an msa however contrary to what would be expected this impact is only significant in msas in which the filing state is based on employment states without reciprocity and not for those states in which the filing state is the state of residence states with reciprocity in msas where states do not have reciprocity agreements a difference of ten percent in tax rates leads to a 4 1 percent difference in the relative rate of incoming taxpayers analogously we find that a ten percent difference in state tax rates in these msas results in a 3 3 percent difference in the rate of tax base inflow agi our results suggest that one reason that differences in state income taxes appear to have more impact in multistate msas without reciprocity is that only relatively large differences in state income tax rates have any impact on migration and these differences are much more pronounced in msas without reciprocity

captial mobility distributive conflict and international tax coordination basic economic theory identifies a number of efficiency gains that derive from international capital mobility but just as with free trade in goods there is no guarantee that capital mobility makes everyone better off consequently capital mobility may be politically unsustainable even though it enhances efficiency this paper discusses how such a dilemma might arise and suggests that international tax coordination might serve as a way out under some circumstances c 2001 published by elsevier science b v

coordinating investment production and subcontracting we value the option of subcontracting to improve financial performance and system coordination by analyzing a competitive stochastic investment game with recourse the manufacturer and subcontractor decide separately on their capacity investment levels then demand uncertainty is resolved and both parties have the option to subcontract when deciding on their production and sales we analyze and present outsourcing conditions for three contract types 1 price only contracts where an ex ante transfer price is set for each unit supplied by the subcontractor 2 incomplete contracts where both parties negotiate over the subcontracting transfer and 3 state dependent price only and incomplete contracts for which we show an equivalence result while subcontracting with these three contract types can coordinate production decisions in the supply system only state dependent contracts can eliminate all decentralization costs and coordinate capacity investment decisions the minimally sufficient price only contract that coordinates our supply chain specifies transfer prices for a small number 6 in our model of contingent scenarios our game theoretic model allows the analysis of the role of transfer prices and of the bargaining power of buyer and supplier we find that sometimes firms may be better off leaving some contract parameters unspecified ex ante and agreeing to negotiate ex post also a price focused strategy for managing subcontractors can backfire because a lower transfer price may decrease the manufacturer s profit finally as with financial options the option value of subcontracting increases as markets are more volatile or more negatively correlated

learning by doing and learning from others human capital and technical change in agriculture household level panel data from a nationally representative sample of rural indian households describing the adoption and profitability of high yielding seed varieties hyvs associated with the green revolution are used to test the implications of a model incorporating learning by doing and learning spillovers the estimates indicate that i imperfect knowledge about the management of the new seeds was a significant barrier to adoption ii this barrier diminished as farmer experience with the new technologies increased iii own experience and neighbors experience with hyvs significantly increased hyv profitability and iv farmers do not fully incorporate the village returns to learning in making adoption decisions

relational incentive contracts standard incentive theory models provide a rich framework for studying informational problems but assume that contracts can be perfectly enforced this paper studies the design of self enforced relational contracts i show that optimal contracts often can take a simple stationary form but that self enforcement restricts promised compensation and affects incentive provision with hidden information it may be optimal for an agent to supply the same inefficient effort regardless of cost conditions with moral hazard optimal contracts involve just two levels of compensation this is true even if performance measures are subjective in which case optimal contracts terminate following poor performance jel c73 d82 l14

equilibrium capital taxation in open economies under commitment abstract this paper analyzes equilibrium capital taxation in open economies with strategic interaction in a neo classical growth model under perfect commitment i show that non cooperative capital taxes are zero in the long run for a large open economy thereby generalizing the result previously established only for the special cases of a closed and a small open economy this does not represent a race to the bottom though since the result is independent of the degree of capital mobility the number of countries or a country s size relative to the rest of the world moreover when countries cooperate they still set capital taxes to zero in the long run these outcomes are robust to different equilibrium specifications the inclusion of endogenous government spending and heterogeneous agents and non linear labor income taxation governments find it optimal to implement the efficient capital allocation in the long run both in a closed and an open economy this trumps incentives to tax foreigners domestic capital holdings by raising capital taxes and attracting capital from abroad by lowering capital taxes

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

a bargaining theory of distribution channels abstract a critical factor in channel relationships between manufacturers and retailers is the relative bargaining power of both parties in this article the authors develop a framework to examine bargaining between channel members and demonstrate that the bargaining process actually affects the degree of coordination and that two part tariffs will not be part of the market contract even in a simple one manufacturer one retailer channel to establish the institutional and theoretical bases for these results the authors relax the conventional assumption that the product being exchanged is completely specifiable in a contract they show that the institution of bargaining has force and it affects channel coordination when the complexity of nonspecifiability of the product exchange is present the authors find that greater retailer power promotes channel coordination thus there are conditions in which the presence of a powerful retailer might actually be beneficial to all channel members the authors rec

human capital and information this paper examines the issue of the establishment size wage effect it analyzes a cross section for the year 1979 with information on 607 individuals and the 60 private sector establishments where they work it discusses four theories of the establishment size wage effect and uses empirical proxies to test them it shows that when a dummy variable on computer access in the establishment is introduced as a regressor the establishment size variable is an insignificant regressor this result and other evidence supports the contention that the establishment size coefficient captures the effect of unobserved human capital accumulation

air passenger duties as strategic tourism taxation abstract there has been a recent debate on the rationale and economic impacts of air passenger duties apds linked to puzzling empirical results on this topic we argue that an approach from strategic tourism taxation can improve our understanding of these results apd set by origin countries of tourists can be viewed as an instrument for extracting economic rents that would otherwise be retained by tourism destinations a theoretical model of strategic taxation between an origin and two destinations is developed to illustrate this idea we find that countries strategies may end up with winners and losers or with all parties facing welfare losses the game outcome depends on countries market shares of profits and the substitutability between tourism services provided by different destinations the findings suggest that the economic impacts of apds recently evaluated in the literature might be biased because of the omission of other countries potential tax reactions

human capital information and the early adoption of new technology when producers are uncertain or have imperfect information about the profitability of adopting new technology their adoption behavior depends on the endowment of human capital and the investment in adoption information this study analyzes the role of education experience and information acquisition in the decision to be an early adopter the findings support the hypothesis that adoption decision making is a human capital intensive activity the econometric evidence presented suggests that education and information reduce adoption costs and uncertainty and thereby raise the probability of early adoption adoption behavior is also shown to vary significantly across firm size

taxes and international risk sharing abstract we extend a standard model of international risk sharing to include an empirically plausible distortion taxes the tax inclusive theory implies even under full risk sharing a predictable relationship between consumption growth and the consumption and capital income tax rates both within and across countries we find strong empirical evidence in favor of this relationship while idiosyncratic output fluctuations account for substantially more of cross country consumption growth variability than do taxes trends in tax differentials are found to be informative about the dynamic evolution of international risk sharing in particular adjusting for capital taxes reveals a marked improvement in risk sharing over the last three decades that is absent in baseline measures this improvement has been driven by the convergence of average tax rates on capital income across oecd countries toward the united states average capital tax rate

will social welfare expenditures survive tax competition increasing economic openness creates demands for social welfare programmes designed to cushion the impact of economic changes but may also encourage governments to reduce tax rates to attract mobile economic resources competitive tax reductions could then prevent governments from being able to finance significant welfare spending alternatively economic globalization might improve the ability of governments to afford social welfare programmes and several considerations point in this direction first taxes on internationally mobile activity represent only small fractions of total revenue collections personal income taxes value added taxes and social insurance contributions finance most social welfare spending second international competition need not reduce taxes and indeed over the past 25 years corporate tax collections have remained high as fractions of gdp and total taxes third the vitality of a country s economy largely determines its level of social spending to the extent that incomes rise as a result greater economic openness should strengthen provision of social welfare copyright 2006 oxford university press

complementarity and cumulative learning effects in early diffusion of multiple technologies this paper concentrates on the contextual diffusion of flexible automation production and design engineering technologies in the italian metalworking industry the authors use duration data analysis with explanatory covariates to point out the role of complementarities between the technologies examined and learning by using effects matured with experience of previously available technologies in shaping diffusion paths the impact of industry and plant specific control variables as well as that of the stock of previous adopters on adoption probabilities is also taken into account in addition the authors analyze duration versus calendar time dependence of adoption probabilities copyright 1995 by blackwell publishing ltd

financial globalization inequality and the rising public debt abstract during the last three decades government debt has increased in most developed countries during the same period we have also observed a significant liberalization of international financial markets we propose a multicountry model with incomplete markets and show that governments may choose higher levels of debt when financial markets become internationally integrated we also show that public debt increases with the volatility of uninsurable income idiosyncratic risk to the extent that the increase in income inequality observed in some industrialized countries has been associated with higher idiosyncratic risk the paper suggests another potential mechanism for the rise in public debt jel d31 e62 f65 h63

on pareto improving commodity tax changes under fiscal competition this paper shows that when a noncooperative fiscal equilibrium of the mintz tulkens 1986 model of tax competition is inefficient pareto improving changes are positive for the taxes of both regions under concavity of the regions welfare functions it also identifies a class of such equilibria that are always efficient

residence and source based capital taxation in open economies with infinitely lived consumers abstract in this paper we investigate tax competition in a neoclassical growth model where each country may use both residence and source based capital taxes we show that both types of capital taxes are zero at any interior steady state just as in a closed economy for symmetric countries and even for countries that differ only with respect to size and productivity we prove analytically and verify numerically that the open economy policies coincide exactly with the closed economy policies in all time periods for countries that are asymmetric in other dimensions we find that source based taxes are used to manipulate the intertemporal terms of trade in the short run either way the fiscal externalities of source based taxes vanish once residence based taxes are allowed

technical note optimal long term supply contracts with asymmetric demand information we consider a manufacturer selling to a retailer with private demand information arising dynamically over an infinite time horizon under a backlogging model we show that the manufacturer s optimal dynamic long term contract takes a simple form in the first period based on her private demand forecast the retailer selects a wholesale price and pays an associated upfront fee and from then on the two parties stick to a simple wholesale price contract with the retailer s chosen price under a lost sales model we show that the structure of the optimal long term contract combines a menu of wholesale pricing contracts with an option that if exercised by the retailer reduces future wholesale prices in exchange for an immediate payment to the manufacturer the online appendix is available at https doi org 10 1287 opre 2017 1626

designing incentive systems for truthful forecast information sharing within a firm we consider a firm where the sales division sales is responsible for demand forecasting and the operations division operations is responsible for ordering sales has better information about the demand than operations and sends a nonbinding demand forecast to operations to incentivize truthful information sharing we include a forecast error penalty in the incentive system of sales besides monetary payoffs we also add behavioral factors to the utility function of sales we model the setting as a signaling game and derive the pareto dominant separating equilibria of the game in laboratory experiments we observe human behavior that is in line with the predictions of the behavioral model but deviates substantially from expected payoff maximizing behavior we use the behavioral model to design incentive systems for truthful information sharing and validate the approach in an experiment with out of sample treatments and out of sample subjects we conduct additional experiments to provide further robus

international coordination of fiscal policy in limiting economies we examine the limiting behavior of cooperative and noncooperative fiscal policies as countries market power goes to zero we show that these policies converge if countries raise revenues through lump sum taxation however if there are unremovable domestic distortions such as distorting taxes there can be gains to coordination even when a single country s policy cannot affect world prices these results differ from the received wisdom in the optimal tariff literature the key distinction is that contrary to the tariff literature the spending decisions of governments are explicitly modeled

international tax coordination regionalism versus globalism tax competition for mobile capital can undermine the attempts of governments to redistribute income from rich to poor i study whether international tax coordination can alleviate this problem using a general equilibrium model synthesizing recent contributions to the tax competition literature the model highlights the crucial distinction between global tax coordination and regional coordination with high capital mobility between the tax union and the rest of the world the welfare gain from regional capital income tax coordination is only a small fraction of the gain from global coordination even if the tax union is large relative to the world economy

o ring production on u s hog farms joint choices of farm size technology and compensation we hypothesize that hog production can be characterized by complementarities between new technologies worker skills and farms size such production processes are consistent with kremer s 1993 o ring production theory in which a single mistake in any one of several complementary tasks in a firm s production process can lead to catastrophic failure of the product s value in hog production mistakes that introduce disease or pathogens into the production facility can cause a total loss of the herd consistent with predictions derived from the o ring theory we provide evidence that the most skilled workers concentrate in the largest and most technologically advanced farms and are paid more than comparable workers on smaller farms these findings suggest that worker skills new technologies and farm size are complements in production the complementarities create returns to scale to large hog confinements consistent with the dramatic increase in market share of very large farms over the past 20 years

taxing an independent scotland if scotland were to become independent it would gain considerably more control over its tax system than it currently enjoys in this paper we consider the consequences of independence for the optimal design of a new scottish tax system an analysis which would also be of some relevance for considering the consequences for tax design of independence of other smaller nations scotland is different from the rest of the uk in some ways that are important for tax system design incomes are more equally distributed for example that is one reason why the progressive income tax currently raises less per head in scotland than in the rest of the uk it also suggests that there is less to be gained in terms of redistribution from sharply progressive taxation independence would create additional complexity for individuals and firms working or trading across borders it could also put downward pressure on tax rates and our analysis suggests that optimal tax rates in an independent scotland are likely to be lower than optimal rates in the uk as a whole at the same time the context of a substan tial budget deficit will continue to put upward pressure on tax rates

the structure of wages and benefits in the u s pork industry pork production has evolved from relatively small family run operations toward large scale operations with several employees important questions about the structure of compensation in this rapidly changing labor market are answered using probit and ordered probit models and data from a national survey of pork producers and their employees the results suggest i the structure of wages in pork production is consistent with more developed labor markets ii employees earn a wage premium for using advanced technology and working in larger operations and iii employees are willing to accept lower wages in exchange for better benefits and working conditions

fiscal competition and public debt the existing theoretical literature on fiscal competition has to a large extent ignored the role of government debt as a determinant of taxes and productive public spending we develop a simple model of fiscal competition with government borrowing if a default on government debt is no option initial debt levels play no role in fiscal competition this neutrality result is overturned when a default is possible a government that is constrained in its borrowing due to a possible default responds optimally by lowering spending on durable public infrastructure which in turn induces more aggressive tax setting a rise in exogenous firm mobility reinforces the link between legacy debt and fiscal competition our model may help explain the observation that highly indebted countries in europe have decreased corporate tax rates over proportionally our model may also be useful for evaluating decentralization reforms in which the power to tax firms is devolved to lower levels of overnments which differ in their initial debt levels

foreign labor costs and domestic employment what are the spillovers abstract this paper studies the international spillover effects of country specific labor cost changes in the presence of labor market frictions a two country model with search frictions predicts that a cut in foreign labor costs leads to an increase in domestic employment driven by a positive terms of trade effect on job creation i find empirical evidence in support of this positive spillover effect the terms of trade channel and the dependence on the degree of labor market rigidity this is done by a panel regression that estimates the effect of exogenous variation in foreign unit labor costs instrumented by changes in foreign statutory social security contribution rates on domestic employment and output

information sharing in a long term supply chain relationship the role of customer review strategy in this paper we study the practice of forecast sharing and supply chain coordination with a game theoretical model we find that in a one shot version of the game forecasts are not shared truthf

on manufacturing marketing incentives stereotypically marketing is mainly concerned about satisfying customers and manufacturing is mainly interested in factory efficiency using the principal agent agency paradigm which assumes that the marketing and manufacturing managers of the firm will act in their self interest we seek incentive plans that will induce those managers to act so that the owner of the firm can attain as much as possible of the residual returns one optimal incentive plan can be interpreted as follows the owner subcontracts to pay the manufacturing manager a fixed rate for all capacity he delivers each marketing manager receives all of the returns from his product in turn all managers pay a fixed fee to the owner under this plan the marketing managers will often complain about the stock level decisions even though these levels are announced in advance under a revised plan the owner can eliminate such complaints by delegating the stocking decisions to the respective marketing managers without any loss this plan is interpreted as requiring the owner to make a futures market for manufacturing capacity paying the manufacturing manager the expected marginal value for each unit of capacity delivered receiving the realized marginal value from the marketing managers and losing money on average in the process

demand signalling under unobservable effort in franchising linear and nonlinear price contracts we study the signalling strategy of a principal who is privately informed about its high demand potential to an uninformed risk neutral agent we analyze the model in the context of a contract between a franchisor and a franchisee we examine the distortions of a two part pricing scheme necessary to credibly inform the franchisee agent we also study whether the inability of the franchisor principal to observe the agent s effort moderates or exaggerates the distortions from the first best two part pricing scheme a surprising outcome is that even though the principal incurs greater signalling cost the magnitude of distortion in the two part scheme is smaller when service is unobservable than when it is not thus a signalling strategy employing the fixed and variable fees is harder to detect under moral hazard empirical studies failing to control for moral hazard may incorrectly conclude that signalling strategy does not occur we later consider a three part scheme to verify whether or not the schem

salesforce incentives market information and production inventory planning salespeople are the eyes and ears of the firms they serve they possess market knowledge that is critical for a wide range of decisions a key question is how a firm can provide incentives to its salesforce so that it is in their interest to truthfully disclose their information about the market and to work hard many people have considered this question and provided solutions perhaps the most well known solution is due to gonik 1978 who proposed and implemented a clever scheme designed to elicit market information and encourage hard work the purpose of this paper is to study gonik s scheme and compare it with a menu of linear contracts a solution often used in the agency literature in a model where the market information possessed by the salesforce is important for the firm s production and inventory planning decisions

nash equilibrium tariffs for the united states and canada the roles of country size scale economies and capital mobility a theoretical analysis of optimal nash equilibrium tariff rates is presented a numerical general equilibrium model is then used to find nash equilibrium tariff rates for the united states and canada the nash equilibrium tariffs are small relative to partial equilibrium estimates 18 percent for the united states and 6 percent for canada the united states is essentially indifferent between the nash equilibrium and free trade while canada is better off at the latter by 4 billion empirical results support theoretical predictions that the optimal tariff is smaller when the country is smaller there are scale economies and free entry and capital is internationally mobile

a three input model of the spatial effects of a central city wage tax abstract this paper considers the short run and long run spatial effects on wages employment and business capital as functions of location of a localized increase in wage tax rates the model is most applicable to a central city that has a higher wage tax rate than the surrounding suburbs the inclusion of land as a third input in production significantly reduces the long run effects of a central city wage tax on employment near the central city boundary as compared with a model in which labor and capital are the only two inputs the short run effects are significantly less than the long run effects

who benefits from partial tax coordination in this paper we investigate whether partial tax coordination is beneficial to countries within and outside a tax union in which countries are supposed to compete in taxes and infrastructure our results demonstrate that a subgroup of countries agreeing on a common tax rate can harm both member and nonmember states this is in contrast to the classical findings that partial tax harmonisation is pareto improving when a minimum tax rate is imposed within a tax union we demonstrate that it does not necessarily improve the welfare of the member countries moreover both the high tax and low tax countries can be worse off this conclusion is at odds with the classical result that a high tax country benefits from the imposition of a lower tax bound

measuring imputed cost in the semiconductor equipment supply chain we consider the order fulfillment process of a supplier producing a customized capital good such as production equipment commercial aircraft medical devices or defense systems as is common in these industries prior to receiving a firm purchase order from the customer the supplier receives a series of shared forecasts which are called soft orders facing a stochastic internal manufacturing lead time the supplier must decide at what time to begin the fulfillment of the order this decision requires a trade off between starting too early leading to potential holding or cancellation costs and starting too late leading to potential delay costs we collect detailed data of shared forecasts actual purchase orders production lead times and delivery dates for a supplier buyer dyad in the semiconductor equipment supply chain under the assumption that the supplier acts rationally optimally balancing the cancellation holding and delay costs we are able to estimate the corresponding imputed cost parameters based on the observed data our estimation results reveal that the supplier perceives the cost of cancellation to be about two times higher and the holding costs to be about three times higher than the delay cost in other words the supplier is very conservative when commencing the order fulfillment which undermines the effectiveness of the overall forecast sharing mechanism

the spatial incidence of local retail taxation this paper examines the effects of local retail taxation in two simple models of spatial competition suppose that a suburb or central city imposes an excise tax or subsidy on a particular commodity such as gasoline liquor restaurant meals or groceries or imposes a general sales tax that affects many commodities simultaneously to what extent does this lead to higher prices within the jurisdiction and in neighboring jurisdictions section ii presents the basic model of spatial competition that forms a component of the fixed locations model of section iii and the entry model of section iv infinitely many stores are located along an infinite line and demand density is completely inelastic and uniform along the line the main endogenous variables of interest are the prices charged by the different stores throughout the paper a nash equilibrium in prices is assumed section iii presents the fixed locations model in which the tax is imposed after stores have already established themselves store locations are fixed due to location specific sunk costs if a suburb containing a single store imposes an excise tax on a commodity the store that is taxed and its first second and third nearest neighbors on each side increase their prices by 57 7 percent 15 5 percent 4 2 percent and 1 1 percent of the tax respectively this result is independent of the spacing of the stores and independent of whether or not they are evenly spaced if a suburb containing several stores imposes an excise tax the changes in price follow directly by adding the effects of taxes on several adjacent stores if a central city taxes all stores on the right half line the results are given by 12 the taxed and untaxed stores closest to the boundary

tax competition and tax coordination in an optimum income tax model abstract the paper uses the self selection approach of stiglitz 1982 to study tax competition and tax coordination in a many country optimum income tax model in the model the government can impose a non linear tax schedule on wage income and a source based tax on mobile capital in an uncoordinated equilibrium it turns out that countries can use the capital tax instrument to weaken the self selection constraint the paper presents examples where positive and negative capital taxes are optimal from a single country perspective if the production function is weakly separable between labor and capital it can be shown that the optimal capital tax is zero the paper also shows that contrary to the standard tax competition model the uncoordinated equilibrium can be efficient if the wealth distribution the endowments with capital among individuals is egalitarian a coordination of capital taxes does not affect welfare for non egalitarian wealth distributions a coordinated increase in capital taxes can raise or lower welfare depending on the redistributive impact of a higher capital tax

the welfare cost of capital income taxation in a growing economy the welfare cost of capital income taxation is analyzed in a general equilibrium framework where the private sector is represented by a competitive household endowed with perfect foresight and an infinite life the value of the welfare cost depends essentially on the elasticity of substitution between capital and labor in the production function numerical estimates are presented for different values of the parameters of the model the welfare gain obtained by the abolition of the capital income tax is smaller when the private sector is not endowed with perfect foresight it is reduced by about 40 percent when expectations are myopic the allocation efficiency cost of the corporate tax dwarfs the intertemporal welfare cost

the diffusion of new agricultural technologies the case of crossbred cow technology in tanzania the recent literature on agricultural technology adoption shows that diffusion of new technologies varies significantly across space and time furthermore puzzles exist about why some seemingly profitable technologies are not adopted especially in livestock production we employ a hazard or duration function to explain diffusion of crossbred cow technology in a unique sample of tanzania farmers a farmer s adoption of crossbred technology depends positively on the proximity of his farm to other users on his schooling and on his access to credit and contact with extension agents

the quantity flexibility contract and supplier customer incentives consider a supply chain consisting of two independent agents a supplier e g a manufacturer and its customer e g a retailer the latter in turn serving an uncertain market demand to reconcile manufacturing procurement time lags with a need for timely response to the market such supply chains often must commit resources to production quantities based on forecasted rather than realized demand the customer typically provides a planning forecast of its intended purchase which does not entail commitment benefiting from overproduction while not bearing the immediate costs the customer has incentive to initially overforecast before eventually purchasing a lesser quantity the supplier must in turn anticipate such behavior in its production quantity decision this individually rational behavior results in an inefficient supply chain this paper models the incentives of the two parties identifying causes of inefficiency and suggesting remedies particular attention is given to the quantity flexibility qf contract which couples the customer s commitment to purchase no less than a certain percentage below the forecast with the supplier s guarantee to deliver up to a certain percentage above under certain conditions this method can allocate the costs of market demand uncertainty so as to lead the individually motivated supplier and customer to the systemwide optimal outcome we characterize the implications of qf contracts for the behavior and performance of both parties and the supply chain as a whole

optimal soft order revisions under demand and supply uncertainty and upstream information abstract demand patterns for products with short life cycles or seasonal demand do not follow a discernible pattern for individual sales events and seasons due to uncertainty associated with effectiveness of product promotions willingness of major retailers to carry product and their support competition and other unforeseen marketplace events factors these atypical demand patterns can be volatile and unsuitable for traditional demand forecasting in such cases buyers utilize market signals to regularly update demand forecasts under these settings sharing early soft order i e order forecast with the supplier reduces buyer s risk of supply shortages in this study we propose an optimal order revision policy for a buyer facing atypical demand and supply uncertainty for a single selling season based on a stochastic dynamic program we demonstrate the value of soft orders as well as supplier s inventory position information for the buyer we make several key contributions i we introduce a decision model for buyer to optimally revise soft orders under supply uncertainty with or without supplier s inventory position information under a deposit scheme ii we characterize the relationship between the optimal soft order and final firm order under demand forecasts and revisions demonstrating that optimal orders may be aggressive conservative or match the demand forecast iii we identify settings under which inventory position information of the supplier is beneficial to the buyer iv we offer a mechanism for identifying the minimum unit deposit cost that will lead to truthful soft orders from the buyer a detailed analysis explores the structure of the optimal ordering policies as well as the effect of cost parameters and sources of uncertainty on buyer performance

dynamic business share allocation in a supply chain with competing suppliers this paper studies a repeated game between a manufacturer and two competing suppliers with imperfect monitoring we present a principal agent model for managing long term supplier relationships using a unique form of measurement and incentive scheme we measure a supplier s overall performance with a rating equivalent to its continuation utility the expected total discounted utility of its future payoffs and incentivize supplier effort with larger allocations of future business we obtain the vector of the two suppliers ratings as the state of a markov decision process and we solve an infinite horizon contracting problem in which the manufacturer allocates business volume between the two suppliers and updates their ratings dynamically based on their current ratings and the current performance outcome our contributions are both theoretical and managerial we propose a repeated principal agent model with a novel incentive scheme to tackle a common but challenging incentive problem in a multiperiod s

the structure of the climate debate first best climate policy is a uniform carbon tax which gradually rises over time civil servants have complicated climate policy to expand bureaucracies politicians to create rents environmentalists have exaggerated climate change to gain influence other activists have joined the climate bandwagon opponents to climate policy have attacked the weaknesses in climate research the climate debate is convoluted and polarized as a result and climate policy complex climate policy should become easier and more rational as the paris agreement has shifted climate policy back towards national governments changing political priorities austerity and a maturing bureaucracy should lead to a more constructive climate debate

jeux sans frontieres tax competition and tax coordination when countries differ in size closer international integration is putting increasing pressure on existing national tax structures this paper uses a simple two country model to address a range of consequent policy concerns focusing particularly on the role of country size differences in size exacerbate the inefficiency from noncooperative behavior harming both countries the smaller country loses from harmonization to any tax rate between those set in the noncooperative equilibrium but both countries gain from the imposition of a minimum tax anywhere in that range the fully optimal response to freer cross border trade however may be to do nothing jel h20 h77

eu regional policy and tax competition the european union eu provides coordination and financing of trans european transport infrastructures i e roads and railways which link the eu member states and reduce the cost of transport and mobility this raises the question of whether eu involvement in this area is justified by inefficiencies of national infrastructure policies moreover an often expressed concern is that policies enhancing mobility may boost tax competition we analyze these questions using a model where countries compete for the location of profitable firms we show that a coordination of investment in transport cost reducing infrastructures within union countries enhances welfare and mitigates tax competition in contrast with regard to union periphery infrastructure the union has an interest in a coordinated reduction of investment expenditures here the effects on tax competition are ambiguous our results provide a rationale for eu level regional policy that supports the development of intra union infrastructure

setting the right incentives for global planning and operations we study incentive issues seen in a firm performing global planning and manufacturing and local demand management the stochastic demands in local markets are best observed by the regional business units and the firm relies on the business units forecasts for planning of global manufacturing operations we propose a class of performance evaluation schemes that induce the business units to reveal their private demand information truthfully by turning the business units demand revelation game into a potential game with truth telling being a potential maximizer an appealing refinement of nash equilibrium moreover these cooperative performance evaluation schemes satisfy several essential fairness notions after analyzing the characteristics of several performance evaluation schemes in this class we extend our analysis to include the impact of effort on demand

modeling multiple adoption decisions in a joint framework a multinomial probit mnp model is applied to the modeling of adoption decisions by farmers facing multiple technologies which can be adopted in various combinations this model allows for full investigation of the interactions between decisions to adopt or not adopt several technologies estimation is carried out in a bayesian framework employing gibbs sampling to circumvent past difficulties encountered in maximum likelihood estimation of the mnp model the model is estimated for a sample of u s apple growers with four possible sustainable production technology bundles the results show that adoption decisions are most significantly influenced by off farm labor supply

does a manufacturer benefit from selling to a better forecasting retailer this paper considers a manufacturer selling to a newsvendor retailer that possesses superior demand forecast information we show that the manufacturer s expected profit is convex in the retailer s forecasting accuracy the manufacturer benefits from selling to a better forecasting retailer if and only if the retailer is already a good forecaster if the retailer has poor forecasting capabilities then the manufacturer is hurt as the retailer s forecasting capability improves more generally the manufacturer tends to be hurt benefit by improved retailer forecasting capabilities if the product economics are lucrative poor finally the optimal procurement contract is a quantity discount contract

fiscal competition and the pattern of public spending much attention has been given to the impact of fiscal competition on the level of public expenditure but relatively little to the impact on its composition using a broadly familiar and reasonably rich model of fiscal competition in the presence of mobile capital this paper establishes a systematic bias in public spending patterns starting from the non cooperative equilibrium and holding tax rates constant welfare would be improved by a coordinated reduction in the provision of local public inputs and a corresponding increase in the public provision of local public goods benefiting immobile consumers c 1997 elsevier science s a

the international ramifications of tax reforms supply side economics in a global economy this paper studies tax reforms in a dynamic model of a global economy calibrated to current u s and european tax policies world capital markets add consumption smoothing and income redistribution effects that alter closed economy predictions in the absence of taxes on foreign interest welfare gains of eliminating u s income taxes are enlarged by up to 34 percent at the expense of european losses caused by transitional declines in consumption and leisure and a permanent capital outflow in contrast if foreign interest is taxed the same tax reform reduces u s welfare 0 7 percent and increases european welfare 1 8 percent copyright 1998 by american economic association