optimal leniency and the organization design of group crime abstract we study a simple law enforcement model where the organizational structure of a criminal group is endogenous and determined jointly with the amnesty granted to whistleblowers we allow criminals to choose between a horizontal partnership and a vertical hierarchical organization structure and we study how this choice affects the optimal leniency granted by a benevolent legislator whose aim is to minimize crime we show that the optimal amnesty with an endogenous organizational choice is less lenient than that granted when the policy targets vertical organizations only in the equilibrium partnerships coexist with vertical organizations

pre emptive corruption hold up and repeated interactions this paper analyses repeated interactions between a firm and an inspector who monitors regulatory compliance the firm may offer a bribe to pre empt the inspection corruption is unfeasible in the one shot game because of inspector hold up in an infinitely repeated game we characterize the set of bribes that can be sustained as equilibrium paths using the trigger strategy in this model the most likely bribe givers are not the firms that benefit the most from the illegal behaviour furthermore strengthening anti corruption policies has ambiguous welfare effects because it improves compliance only among a subset of firms and increases monitoring effort

product market competition and managerial slack this article analyzes the effect of product market competition on managerial incentives in contrast to hart 1983a i show that competition may actually exacerbate the incentive problem the difference in results derives from our different assumptions about managerial preferences the importance of assumptions about preferences suggests that we do not yet understand the precise mechanism through which competition affects incentives

what price drug use the contribution of economics to an evidence based drugs policy abstract this paper presents a review of the recent economics literature in the area of illicit drug use particular attention is paid to the economics of addiction and the rational addiction model the welfare economics framework for analysing the social costs of drug use and the attempts that have been made by economists to evaluate recent or proposed policy interventions a dominant theme in this review is the problem of poor data availability this is particularly true when it comes to implementing the rational addiction model but it is also apparent in the literature on estimating the costs of illicit drug use to society as a whole one of the main conclusions of this review is that until recently public policy has not been particularly influenced by research carried out by economists it is not clear whether this is because economists have had to grapple with inadequate data and hence their conclusions are couched in uncertainty or whether it is because drugs researchers have assumed a very limited role for economists in their analysis

collusion and renegotiation in a principal supervisor agent relationship this paper describes a principal agent relationship with a supervisor who has information about the agent the agent and the supervisor have the possibility to collude and misinform the principal from the literature we know that there exists an optimal contract which excludes collusion in equilibrium the optimal contract however is ex post inefficient and creates scope for renegotiation if renegotiation is allowed then under some parameter constellations the optimal contract is a contract which necessarily induces collusion the paper thus shows that the principal s behavior toward ex post inefficiencies may determine whether collusion occurs in equilibrium

extortion and political risk insurance we consider the problem faced by firms operating in a foreign country characterized by weak governance our focus is on extortion based on the threat of expropriation and bureaucratic harassment the bureaucrat s bargaining power is characterized by a general extortion mechanism adapted from the optimal auction theory in myerson 1981 this characterization is used to analyze the determinants of the quality of governance and whether and how this is improved by political risk insurance this insurance reduces the bureaucrat s total revenue from corruption but may also increase the risk of expropriation and extortion bribes the analysis allows us to derive some policy recommendations with respect to public intervention in the political risk insurance sector

a quantile estimation approach to identify income and age variation in the value of a statistical life abstract in theory heterogeneity in individual characteristics translates into variation in the marginal willingness to pay for a mortality risk reduction two dimensions of heterogeneity with respect to income and age have recently received attention due to their policy relevance we propose a quantile regression approach to simultaneously explore these two sources of heterogeneity and their interactions within the context of the hedonic wage model the most common revealed preference approach for obtaining value of statistical life estimates we illustrate the approach using data from the health and retirement study hrs we find that the impact of age on the wage risk tradeoff varies across the wage distribution this result indicates important interactions between age and income heterogeneity thus the conventional mean hedonic wage regression even when the mean effect is allowed to vary with age masks important heterogeneity

credible threats in extortion there is a fundamental credibility problem in the extortion business will the gang retaliate if i refuse to pay unlike reputation models we emphasize the up front investment choice by the gang of which potential victims are uncertain for small numbers of victims only a no extortion equilibrium exists however as the number of potential victims becomes large this equilibrium disappears the only subgame perfect equilibria have extortion and expected loss from violence we justify and examine the properties of one particular set of equilibria the model can also shed light on credibility problems in settings other than extortion

regulating prostitution a health risk approach abstract we build an equilibrium model of prostitution where clients and sex workers choose to demand and supply sex under three legal regimes prohibition regulation and laissez faire the key feature is the endogenous evolution of the risk as a consequence of policy changes we calibrate the model to empirical evidence from italy and then compare the effect of different policies on the equilibrium quantity of prostitution and on the harm associated with it a prohibition regime that makes it illegal to buy sex but not to sell it is more effective than the opposite regime in reducing quantity taxes are one inducement to go illegal and prevent some of the less risky individuals from joining the market leaving it smaller but riskier a licensing system that prevents some infected individuals from joining the legal market reduces the risk and is therefore associated with an increase in quantity prohibition is preferable to minimize quantity only if a high expected fine is feasible regulation is best to minimize harm

roy model sorting and nonrandom selection in the valuation of a statistical life roy model sorting and the vsl wage hedonics is used to recover the value of a statistical life vsl by exploiting the fact that workers choosing riskier occupations are compensated with a higher wage roy oxford economic papers 3 1951 135 46 suggests that observed wage distributions will be distorted if individuals choose jobs according to idiosyncratic returns we describe how this type of sorting biases wage hedonic vsl estimates and implement two new estimation strategies that correct that bias using data from the current population surveys we recover vsl estimates that are three to four times larger than those based on the traditional techniques statistically significant and robust to a wide array of specifications

the investment problem in terrorism evidence from early terrorist groups reveals a structural equivalence between extortion and terrorism this allows us to draw conclusions from the theory of extortion that can be applied to a theory of terrorism concerning the role of repeated play in the viability of extortion it also enables us to analyse the role of commitment in destroying the extortionary organization

willingness to pay for car safety evidence from sweden this study estimates a marginal willingness to pay wtp function for a road mortality risk reduction observed marginal wtp from the swedish car market is used and found to be positively correlated with the baseline risk of the cars no statistically significant relationships between examined owner attributes e g wealth and background risk and marginal wtp are found when comparing the estimated monetary value of a non marginal risk reduction derived from the integral of the marginal wtp function with an estimate based on marginal wtp we find in line with expectations that the difference between the estimates is negligible for smaller risk reductions and small 4 10 also for relatively large risk reductions

the principal agent relationship with an informed principal the case of private values we analyze the principal agent relationship when the principal has private information as a three stage noncooperative game contract proposal acceptance refusal and contract execution we assume that the information does not directly affect the agent s payoff private values equilibrium exists and is generically locally unique moreover it is pareto optimal for the different types of principal the principal generically does strictly better than when the agent knows her information equilibrium allocations are the walrasian equilibria of an economy where the traders are different types of principal and exchange the slack on the agent s individual rationality and incentive compatibility constraints

plata o plomo bribe and punishment in a theory of political influence we present a model where groups attempt to influence policies using both bribes plata spanish for silver and the threat of punishment plomo spanish for lead we then use it to make predictions about the quality of a country s public officials and to understand the role of institutions granting politicians with immunity from legal prosecution the use of punishment lowers the returns from public office and reduces the incentives of high ability citizens to enter public life cheaper plomo and more resources subject to official discretion are associated with more frequent corruption and less able politicians this predicts that violence in a country will typically go together with corruption and worse politicians moreover the possibility of punishment changes the nature of the influence game so that even cheaper plata can lower the ability of public officials protecting officials from accusations of corruption immunity will decrease the frequency of corruption if the judiciary is weak and may increase the quality of politicians these predictions cannot emerge from a traditional model where only bribes are used the positive evils and dangers of the representative as of every other form of government may be reduced to two heads first general ignorance and incapacity or to speak more moderately insufficient mental qualifications in the controlling body secondly the danger of its being under the influence of interests not identical with the general welfare of the community

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

effects of enforcement on illegal markets evidence from migrant smuggling along the southwestern border abstract the paper analyzes the effects of tighter border control on the illegal crossing market between mexico and the united states combining panel data on illegal migrants with enforcement statistics the effects of enforcement are found to be moderate prices of border smugglers coyotes increased by only 17 while the demand for smugglers has remained unchanged enforcement has however shifted illegal migrants to remote crossing places border crossing is now more time intensive with higher prices for coyotes and risk of death this geographic substitution raised migration costs by 140 more than twice the effect of enforcement on smuggling prices

the price elasticity of african elephant poaching the objective of this paper is to provide an estimate of the elasticity of elephant poaching with respect to prices ivory being a storable commodity subjects its price to hotelling s no arbitrage condition hence allowing identification of the supply curve the price of gold one of many commodities used as stores of value is thus used as an instrument for ivory prices the supply of illegal ivory is found to be price inelastic with an elasticity of 0 4 with changes in consumer prices passing through to prices faced by producers at a rate close to unity estimations based on a number of alternative estimation approaches all confirm the conclusion that supply is inelastic the paper ends with a brief discussion on what such finding implies for elephant conservation policies

the price elasticity of opium in taiwan 1914 1942 abstract between 1895 and 1945 the japanese colonial government virtually eliminated opium use in taiwan by licensing and treating existing users prohibiting sales to others and raising the price we evaluate these policies using a two part model to describe the fraction of the population using opium and consumption among users and the rational addiction model by becker et al 1991 we confirm that opium is addictive and find no evidence supporting the rational addiction hypothesis demand is price elastic with estimated short and long run demand elasticities of 0 48 and 1 38 these results have implications for control of other addictive substances

active and passive waste in government spending evidence from a policy experiment we propose a distinction between active and passive waste as determinants of the cost of public services active waste entails utility for the public decision maker whereas passive waste does not we analyze purchases of standardized goods by italian public bodies and exploit a policy experiment associated with a national procurement agency we find that i some public bodies pay systematically more than others for equivalent goods ii differences are correlated with governance structure iii the variation in prices is principally due to variation in passive rather than active waste and iv passive waste accounts for 83 percent of total estimated waste

complementarity and the measurement of individual risk tradeoffs accounting for quantity and quality of life effects this paper considers the factors responsible for differences with age in estimates of the wage compensation an individual requires to accept increased occupational fatality risk we derive a relationship between the value of a statistical life vsl and the degree of complementarity between consumption and labor supplied when health status serves as a potential source of variation in this relationship our empirical analysis finds that variations in an individual s health status or quality of life and anticipated longevity threats lead to significant differences in the estimated wage risk tradeoffs we describe how extensions to the specification of hedonic wage models including measures for quality of life and anticipated longevity threats help to explain the diversity in past studies examining how the estimated wage risk tradeoff changes with age

infrastructure privatization and changes in corruption patterns the roots of public discontent abstract this paper offers a theory of how the degree of corruption that prevails in a society responds to changes in the ownership structure of major public service providers we show that there are cases in which privatization even though it fosters investments in infrastructure also opens the door to more corruption the public dissatisfaction towards privatization is then crucially affected by the changes in the degree and pattern of corruption our model thus helps understand the seemingly paradoxical situation prevailing in latin america where most studies find that privatizations have been efficiency enhancing and have fostered investments and at the same time popular dissatisfaction with the process is extremely high especially among the middle class we show that this line of explanation is consistent with the evidence from surveys in the region

do the near elderly value mortality risks differently wage hedonic models are estimated with the health and retirement study to measure the risk wage tradeoffs value of statistical lives for older workers the analysis explicitly allows for multiple employment states including retirement using a multinomial selection model the results suggest that the oldest and most risk averse workers require significantly higher not lower compensation to accept increases in job related fatality risks

public procurement and rent seeking the case of paraguay summary a model of entrepreneurial choices in an economy with a corrupt public procurement sector is built providing predictions along two dimensions first corrupt public institutions operate by offering contracts without competition and more corrupt entities channel larger share of their budget in this way second these firms enjoy extra returns so that procurement related activities attract the best entrepreneurs a large scale microeconomic database including all public procurement operations over a 4 year period in paraguay amounting annually to approximately 6 of the country s gdp is then used to corroborate these predictions

economic integration and corruption abstract we study the link between corruption and economic integration integration is modeled by a common regulation for public procurement we show that integration resolves a term of trade driven prisoner s dilemma and will always take place in the absence of corruption corruption may destroy the incentives for integration if the propensities to corruption are too different the more honest country which benefits less from integration will not be willing to join the union this difference in corruption propensities can be offset by a difference in efficiency we also show that integration has the positive effect of reducing corruption

the effects of competition on executive behavior economists presume that competition spurs a firm to be more efficient by forcing it to reduce its agency problems this article investigates this presumption it finds that the effects of competition on executive behavior can be decomposed into four effects each of which is of potentially ambiguous sign theory thus offers no definitive defense of this presumption this article also derives sets of conditions under which increased competition has the presumed effect of reducing agency problems in some sets important conditions are that increased competition reduce the executive s expected income and that agency goods e g shirking be normal goods for the executive the article shows that an increase in the shareholder bargaining strength can both reduce the agency problem and make it more sensitive to competition

anarchy and its breakdown anarchy defined as a system in which participants can seize and defend resources without regulation from above is not chaos but rather a spontaneous order however anarchy is fragile and may dissolve either into formless amorphy or into a more organized system such as hierarchy under anarchy each contestant balances between productive exploitation of the current resource base and fighting to acquire or defend resources anarchy is sustainable only when there are strongly diminishing returns to fighting effort the decisiveness parameter is sufficiently low and incomes exceed the viability minimum these considerations explain many features of animal and human conflict

are wages habit forming evidence from micro data although utility functions play a central role in economics the axiom that utility depends only on the absolute levels of its arguments is rarely tested this paper uses panel data on 2000 british employees who remain with the same employer and who are not promoted from one wave to the next it is shown that one important measure of well being overall job satisfaction is strongly positively correlated with the change in the worker s pay between waves but is unrelated to the current level of pay empirical tests suggest that a reference dependent satisfaction function where individual well being depends on current pay relative to past pay is more consistent with these regression results than are productivity or agency explanations of increasing wage profiles some evidence is presented of greater job satisfaction effects of pay rises for lower paid less well educated and younger workers these results provide some micro evidence consistent with the theory widespread in social science of habituation individuals may become used to any given level of consumption or income as such they tie in with the finding that a country s well being as measured by the average happiness of its citizens is only weakly correlated with its per capita gnp

paradoxical effects of drug policy in a model with imperfect competition and switching costs this paper presents a stylized model of the market for hard drugs we assume that there is imperfect competition that the demand side is dominated by addicts and that the presence of switching costs leads to consumer loyalty drug policies affect the values of the parameters of the model including the degree of consumer loyalty and the static price elasticity of demand taking into account these effects it is shown that tough policies may lead to an increase in the marketing activities by suppliers and cause a long run increase in the number of addicts and total consumption

the demand for illicit drugs i introduction illicit drug use and alcohol abuse imposes significant costs on society and on the individual users these costs include increased crime health problems and employment problems because of these considerable costs government at all levels has made drug control and the control of alcohol abuse important priorities the federal government has undertaken an aggressive program of interdiction of drug shipments and eradication of drug crops in the field the federal government and the state governments have also increased their criminal justice efforts in analyzing the effect of government drug control programs economists have applied the conventional supply and demand model to illicit drug markets the model includes a demand function that is downward sloping with respect to price and a supply function that is upward sloping or horizontal with respect to price drug programs like interdiction and drug sanctions are assumed to reduce supply and raise equilibrium price other policy options such as some form of drug legalization could increase supply and reduce equilibrium price the effect of these policies on equilibrium quantity is dependent on the elasticity of demand and on whether demand shifts since not much is known about drug price elasticities the potential effects of various drug control policies remain a speculative exercise the purpose of this paper is to estimate the effects of alcohol and drug prices on alcohol use and drug participation both own price and cross price effects are estimated there are few prior empirical studies of the effect of drug prices because data have been difficult to acquire this paper makes use of newly available data on drug prices and is the first paper to link these data to a nationally representative drug use data set of 49 802 individuals estimates of drug price elasticities are important empirical evidence that drug sales can be characterized by market forces drug price elasticities are also important in estimating the likely impact of policies that affect drug prices and in estimating the effects of drug prohibition cross price elasticities are important to estimate since they suggest the likely effects of policies such as an increase in alcohol taxes on illicit drug participation and the effects of marijuana decriminalization on alcohol cocaine and heroin use ii prior studies while there are a number of prior studies of the effects of alcohol prices and policies there are few prior studies of drug prices and polices the reason for so few prior drug studies is the limited amount of data on drug prices and the limited options for linking these data to an individual record by residential area this study uses a new data set of cocaine and heroin prices from the drug enforcement agency that was linked to individual records by the office of applied studies at the substance abuse and mental health services administration leung and phelps 1993 provide a review of a number of recent alcohol demand studies the empirical literature provides considerable evidence that shows increasing the price of alcoholic beverages to decrease alcohol use alcohol demand studies generally estimate price elasticities for beer wine and spirits separately most studies employ aggregate data but a few use individual data studies using aggregate data find price elasticities for beer from about 2 to about 1 0 for wine from about 3 to about 1 8 and for spirits from about 3 to about 1 8 studies using individual data estimate price elasticities for beer from about 5 to about 3 0 for wine at about 5 and for spirits from about 5 to about 4 0 the few prior studies of the effect of decriminalization on marijuana use generally find that marijuana decriminalization has no effect on participation pacula 1994 thies and register 1993 dinardo and lemieux 1992 and johnston o malley and bachman 1981 all used samples of young people and found no effect of marijuana decriminalization

organised crime institutions and political quality empirical evidence from italian municipalities this article assesses how legal institutions affect the influence of politically active criminal organisations on the human capital of elected politicians using data from over 1 500 southern italian municipalities in the period 1985 2011 it exploits municipal government dissolutions imposed by the national government for presumed mafia infiltration as a source of exogenous variation in the presence of politically active criminal organisations the results support theoretical predictions that the average education level of local politicians significantly increases when active mafia infiltration of local politics is remedied through the implementation of a stricter legal institutional framework

the economics of organized crime and optimal law enforcement this article extends the optimal law enforcement literature to organized crime i model the criminal organization as a vertical structure where the principal extracts some rents from the agents through extortion as long as extortion is a costless transfer from individuals to the criminal organization not only the existence of extortion is social welfare improving because it makes engaging in a criminal offense less attractive but it also allows the government to reduce expenditures on law enforcement when extortion is costly because the criminal organization resorts to threats and violence the existence of extortion is social welfare diminishing and may lead to higher expenditures on law enforcement

corruption in procurement and public purchase abstract the paper studies capture and extortion in public purchase it shows that capture yields a dead weight loss while extortion does not based on the calibration of the model the total cost of capture is between 1 2 and 2 88 times the amount of the bribes the theoretical analysis focuses on capture fight the legal framework that emerges from the normative analysis involves open tender for larger purchases and no monitoring for the smaller ones the rule is independent of a country s characteristics large public purchases should hence be ruled by international legislation for markets of medium range national legislation differs when susceptibility to corruption rises there is a shift from the capture to the extortion regime

heroin consumption prices and addiction evidence from self reported panel data estimation models of drug demand should encompass the aspect of addiction here we consider two static panel data regression models and two cross section models with lags or leads in drug consumption as additional regressors heroin injectors attending a needle exchange service in oslo were interviewed twice with a one year interval despite our relatively small sample we obtain statistically significant price and income responses for nearly all of the models and specifications applied the sample is split by dealing status with dealers obtaining price elasticities in the range of 0 15 1 51 and non dealers 0 71 1 69 somewhat surprisingly the estimates of the variance of the latent individual specific variable are rather low in the panel data models although higher for non dealers than for dealers

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

structural benefit transfer an example using vsl estimates abstract this paper describes and illustrates a method for benefits transfer referred to as preference calibration or structural benefits transfer this approach requires selection of a preference model capable of describing individual choices over a set of market and associated non market goods to maximize utility when facing budget constraints once the structure is selected the next step involves defining the analytical expressions for the tradeoffs being represented by the set of available benefit measures these algebraic relationships are used with the benefit estimates from the literature to calibrate the parameters of the model the calibrated model then offers the basis for defining the new tradeoffs required for the policy analysis i e for transferring benefits a new application is used to illustrate the structural benefits transfer logic it involves the benefits for mortality risk reductions measured with labor market compensation a worker would accept to be willing to work with added risk the measure is usually labeled the value of a statistical life vsl our application indicates that we should not have expected differences in these measures for the economic value of risk reductions with age the calibrated estimates were not greatly different for combinations of risk levels labor supply choices wages and non wage income for older adults thus simple adjustments relying on value per discounted life year remaining seem questionable

a prisoner s dilemma model of collusion deterrence abstract we examine a hierarchy formed by a principal a supervisor and an agent wherein the supervisor and the agent can collude we consider a case where collusion free supervisors are not available we demonstrate first that it is easy for the principal to deter collusion by introducing a second supervisor and designing a mechanism similar to the prisoner s dilemma so that the two supervisors control each other since it could prove too costly for the principal to send two supervisors a new question arises whether it would be possible to deter collusion by sending the second supervisor with a probability less than one we find that under reasonable assumptions on the size of rewards and punishments the principal can prevent collusion only by creating a new type of supervisor through sometimes informing the second supervisor of his position

labor market estimates of the senior discount for the value of statistical life abstract this article develops the first measures of age industry job risks to examine the age variations in the value of statistical life because of the greater risk vulnerability of older workers they face flatter wage risk gradients than younger workers which we show to be the case empirically accounting for this heterogeneity in hedonic market equilibria leads to estimates of the value of statistical life age relationship that follows an inverted u shape the estimates of the value of statistical life range from 6 4 million for younger workers to a peak of 9 0 million for those aged 35 44 and then a decline to 3 8 million for those aged 55 62 the decline of the estimated value of statistical life with age is consistent with there being some senior discount in the clear skies initiative analysis

rationally addicted to drinking and smoking when modelling demand for addictive consumption goods the most widely used framework is the rational addiction model proposed by becker and murphy this paper extends the rational addiction model to include two addictive consumption goods alcohol and cigarettes and using aggregate annual time series on sales volumes for the period 1955 1999 estimates the aggregate demand for these goods in sweden where ols estimates are compared to gmm estimates allowing for possible endogeneity of lagged and lead consumption first the demand for alcohol and cigarettes are estimated as separate equations and it is found that alcohol demand is quite well described by the rational addiction model while the same is not true for cigarettes the own price elasticities are negative and alcohol demand is more elastic than cigarette demand the cross price elasticities are also negative showing that alcohol and cigarettes are complements since consumption of alcohol and cigarettes are probably simultaneous decisions th

the determinants of price and quality in competitively tendered contracts traditional analysis of the impact of competitive tendering on service provision has focused on costs and prices critics have argued that price reductions lead to lower quality we tested this hypothesis using a two equation econometric model with data from a panel of 61 cleaning service contracts the results indicated that while competition reduced price significantly quality of service was maintained or even enhanced the effect of competition turned out to be greater on prices than on quality and the influence of ownership appeared to be negligible on both the evidence does not support the hypothesis that efficiency gains are traded off for lower quality copyright 1995 by royal economic society

merchants of corruption how entrepreneurs manufacture and supply bribes summary we wondered how corruption endemic in nigeria is experienced by a specific and understudied set of actors entrepreneurs semi structured interviews with founders ceos of firms in three industries associated with high levels of corruption revealed entrepreneurs rather than victims of bribe demanding government agents are themselves active perpetrators of bribery adopting a set of bribery best practices governed by a well embedded set of social norms rules routines and power relations to deliberately subvert formal state budgetary systems while reforming institutions is a key focus of anti corruption policies in many sub saharan african countries our results suggest a bottom up approach to remediation based on understanding the practice from the perspective of those who actively engage in it

corruption extortion and evasion corruption evasion and the abuse of power and the possibility thereof are pervasive features of economic activity a prominent instance is tax collection this paper examines the implications of corruptibility and the potential abuse of authority for the effects and optimal design of potentially non linear tax collection schemes amongst the findings are that the distributional effects of evasion and corruption are unambiguously regressive under the kinds of schemes usual in practice and collecting progressive taxes without inducing evasion or corruption may require that inspectors be paid commission on high income reports but not on low with the cost of this potentially creating what seems to be a previously unnoticed trade off between equity and efficiency

survival versus consumption we develop an indirect method to estimate utility and willingness to pay wtp for reductions in the risk of death at various ages using a life cycle model of consumption we assume that an individual sets his consumption level each year so as to maximize his expected lifetime utility alternative assumptions about opportunities for borrowing and annuities characterize two polar types of societies in our robinson crusoe case an individual must be entirely self sufficient and annuities are not available in our perfect markets case an individual can borrow against future earnings and purchase actuarially fair annuities we show that under these assumptions wtp is the sum of livelihood discounted expected future earnings and consumer surplus to illustrate our methods we derive wtp for an average financially independent american man under plausible assumptions the model is calibrated to 1978 earnings e g 18 000 per year for men aged 45 54 with at least some income in the robinson crusoe case wtp increases from 500 000 at age 20 to a peak of 1 250 000 at age 40 and declines to 630 000 at age 60 in the perfect markets case age variations are less pronounced wtp is 1 050 000 at age 20 peaks at 1 070 000 at age 25 and declines to 600 000 at age 60 these results suggest that individuals value risks to their lives at several times the pro rata share of their future earnings

endangering the war on terror by the war on drugs the united states is currently engaged in two wars one of which is less than a decade old the other has lasted over a century the first the war on terror against islamist fundamentalists began with al qaeda s destruction of the world trade centre s twin towers on sept 11 2001 this led to the us invasion of afghanistan the defeat of the taliban and the dislocation of al qaeda s terrorist infrastructure with osama bin laden and his deputy al zawahari having to flee to the lawless badlands between pakistan and afghanistan with the creation of a democratically elected government under ahmad karzai it might have been thought that the war on terror in afghanistan had been won but as the taliban cum al qaeda scorpion had been squashed but not killed it is now remerging with the resurgence of the taliban and its continuing support for the refurbished al qaeda terrorist network in the southern provinces particularly in helmand of afghanistan this area also happens to be the major poppy growing area in afghanistan for conversion into opium and heroin in 2007 it provided 92 of the world s opium supply whose farm gate value was us 1 billion 1 it is this opium economy which is now as in the past providing the taliban with the money for arms and growing control over the southern opium growing provinces by offering farmers protection from the opium eradication programs spearheaded by the us as part of its war on drugs the first part of this paper

efficiency of purchasing and selling agents in markets with quality uncertainty the case of illicit drug transactions abstract since akerlof s theory of lemons economists have viewed quality uncertainty as an informational advantage for sellers drawing on frontier techniques we propose in this paper a simple method for measuring inefficiency of both sellers and buyers in markets for goods with different levels of quality we apply a non parametric robust double frontier framework to the case of illicit substance markets which suffer from imperfect information about drug quality for purchasers and to a lesser extent for sellers we use unique data on cannabis and cocaine transactions collected in france that include information about price quantity exchanged and purity we find that transactional inefficiency does not really benefit either dealers or purchasers furthermore information influences the performance of agents during market transactions

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

mutual raiding of production and the emergence of exchange joint exchange and raiding can emerge in a world of mutual raiding when the appropriated production is less valuable to the appropriator than to the defender and the defense is not too inferior to attack the amounts of resources allocated to production and raiding and the amounts of goods exchanged reciprocally are determined endogenously the model reduces to pure exchange and pure raiding as special cases pure exchange emerges when the usability of appropriation is sufficiently low pure raiding emerges if the defense is sufficiently inferior to attack the results of the model are intermediate between the results of the two extreme cases jel c6 c72 d51 d72 d74 f10 i introduction in the american civil war each side to some extent looted the other still some true reciprocal exchange between the two sides was conducted by blockade runners whereby the south exported cotton and imported manufactured goods varying across time space pure market exchange may be supplemented by or grow out of such activities as war piracy 1 corruption 2 extortion 3 crime 4 plundering or theft referred to as raiding or mutual raiding generally agents individuals groups companies nations can meet their consumption needs by exchange of goods in accordance with comparative advantage or else by attempts at confiscating the other s production resources goods or trade flows each route has been the subject of separate study this article develops a model in which the equilibrium balance between the two ways of acquiring desired goods is determined by the values of various parameters governing the productive and conflictual processes involved how can exchange conducted voluntarily and with mutual advantage emerge in a world where appropriation and defense through mutual raiding appear to be more natural means of survival 5 classical economics describes how agents exchange goods reciprocally voluntarily and nonviolently 6 political economy describes how agents appropriate and defend one productive resource without reciprocal exchange 7 a few authors attempt to integrate production exchange and appropriation 8 this article lets two agents exchange goods reciprocally and raid each other s production mutually hausken 2003 33 36 classifies the 78 possible models in the exhaustive spirit of rapoport and guyer 1966 for how one or several of the five objects production resources consumption goods exports and imports can be set under attack as is also the case for rider 1999 anderton et al 1999 and anderton 1999 this article utilizes ratio forms of the contest success function 9 reduction to a pure exchange model presented in section ii or a pure raiding model occurs by adjusting parameters also assuming raiding of production rider 1999 claims that pure exchange is impossible 10 which is correct when the production is equally valuable to the appropriator and defender rider shows that in the absence of pure exchange it could turn out and in fact it inevitably turns out that the advantages of diversified consumption achieved by mutual raiding exceeds the wastage of fighting effort if his result were universal one would not observe pure exchange in the real world which in fact we do accordingly this article shows that rider s 1999 result is not inevitable even when accepting his assumption that each agent produces only one of the two desired goods we believe that the two characteristics value of appropriation and superiority of defense over attack 11 are realistic and help explain the empirics as well as reciprocal exchange in the real world 12 regarding the first characteristic grossman and kim 1995 1279 present the following argument which is contrary to most contest models which let appropriated objects be equally valuable to the appropriator and the defender we also allow for the possibility that predation is destructive by which we mean that in any appropriative interaction the predator gains less than the prey loses

the demand for cocaine by young adults a rational addiction approach abstract this paper applies the rational addiction model to the demand for cocaine by young adults in the monitoring the future panel the price of cocaine is added to this survey from the drug enforcement administration s system to retrieve information from drug evidence results suggest that annual participation and frequency of use given participation are negatively related to the price of cocaine in addition current participation frequency is positively related to past and future participation frequency the long run price elasticity of total consumption participation multiplied by frequency given participation of 1 35 is substantial

determinants of adaptation costs in procurement an empirical estimation on italian public works contracts it is widely agreed that rules governing public procurement should be designed to achieve value for money however in the public works sector the good being procured is usually complex and hard to be exactly specified ex ante and alterations to the original project might be needed after the contract is awarded this may result in considerable discrepancies between the lowest winning bid and the actual costs that are incurred by the buyer bajari et al 2006 there is now a wide body of literature focusing on cost escalation during the execution of contracts and their estimates reveal that it can be often quite large this article is aimed at offering an empirical test of the determinants of adaptation costs in the public works procurement using a detailed data set on italian public works contracts we run an empirical analysis grounded on the main conclusions reached in the literature to test for the main drivers of adaptation costs

the scope and limits of accounting and judicial courts intervention in inefficient public procurement cost inefficiencies in public procurement tend to come from two sources corruption moral hazard and incompetence adverse selection in most countries audit authorities are responsible for monitoring costs but do not distinguish both sources of inefficiency in their audits judicial courts typically rely on these cost audits but only sanction corruption in a model of public procurement by politicians we study how the respective quality of the two courts affects corruption as well as cost efficiency we find that while better courts have the direct effect of decreasing corruption they may have a negative indirect effect on the abilities of the pool of politicians so that the net effect on cost efficiency is ambiguous

cocaine the complementarity between legal and illegal trade i show that the decreased price of cocaine in its major destination markets is partly explained by a lower smuggling cost which is itself the consequence of an increased international trade in legal goods first because more legal imports are associated with a bigger number of transporters and therefore with a bigger supply of potential drug smugglers second because as the number of legal shipments grows the individual inspection probability decreases lowering the risk born by the smugglers and thus their compensation the cocaine market provides evidence of a complementarity between legal and illegal trade

the price elasticity of hard drugs the case of opium in the dutch east indies 1923 1938 at the beginning of this century the dutch government controlled the opium market in the dutch east indies nowadays indonesia for several decades this state monopoly was called the opiumregie using information gathered during the opiumregie this paper estimates price elasticities of opium consumption it appears that short term price elasticities of opium use are about 0 7 long term price elasticities are about 1 0

entry for buyout the possibility of buying out an entrant has an important effect on entry deterrence entrants can blackmail the incumbent by threatening to keep prices low and buyout can make entry profitable which otherwise would not be in particular the entry deterrence policy of excess capacity to reduce the post entry price can not only fail but work against the incumbent the presence of multiple oligopolistic incumbents or multiple potential entrants however can discourage entry for buyout the long literature on entry deterrence has always assumed that if entry is made unprofitable no entry will occur but as followers of professional football may have suspected a clearly unprofitable competitor might rationally enter a market in the hopes of selling out to the incumbent i will model such a situation and try to show what conditions facilitate entry for buyout in the simplest entry deterrence model the incumbent successfully maintains monopoly by threatening to expand output and cut price after other firms enter but he succeeds only because potential entrants believe the threat if entrants are rational this strategy fails price warfare hurts the incumbent as well as the entrant so the monopolist would let the entrant have a share of profits after entry potential entrants foreseeing the accommodating response ignore the threat deterred entry is a nash equilibrium but not a perfect nash equilibrium it is nash because the entrant chooses to stay out given the incumbent s strategy of cutting prices after entry and the incumbent does not mind committing himself to cutting prices given that entry never occurs a perfect nash equilibrium is a set of strategies that is a nash equilibrium for every proper subgame if the game is started at any of the nodes of the game tree including those off the equilibrium path the strategies the agents pick to maximize their objective function from that node onwards must be part of the equilibrium strategy for the entire game in the subgame which begins after entry has already occurred the incumbent would not choose to cut prices so cutting prices after entry is not part of a perfect equilibrium in the perfect equilibrium entry occurs and is accommodated

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

mutual supervision in preshipment inspection programs abstract preshipment inspection psi programmes are implemented in many developing countries to assist governments in the collection of revenue at their borders these programs consist of the delegation of the inspection of imports to a private firm to study these psi programmes we develop a hierarchical agency model in which the government authority can rely on two supervisors namely the private inspection firm and the customs administration to control importers declarations the government s optimal contract is fully characterized we devote some attention to the inspection policy and its comparative statics properties in particular we identify the situations in which psi programmes are revenue enhancing we also discuss the reconciliation policy i e what to do in case of conflicting inspection reports by the inspection firm and the customs administration in the optimal mechanism mutual supervision between the inspection firm and the customs administration is used to provide adequate incentives to all parties

is there a meaningful definition of the value of a statistical life a definition of the value of a statistical life is derived this definition has a meaningful interpretation in terms of the monetary value of expected present value utility if consumption is age independent in all other cases empirical estimates of the value of a statistical life are biased estimators of the monetary counterpart to expected present value utility