re examination of uniform commodity taxes under a non linear income tax system and its implication for production efficiency abstract this paper shows that the result of uniform commodity tax under nonlinear income taxation by atkinson and stiglitz 1976 no longer holds if the production side of an economy is taken into the consideration in particular imposing a non uniform commodity tax can pareto improve welfare even under nonlinear income taxation in addition the paper shows that if the government uses a nonlinear income tax system for income redistribution then the introduction of distortions in the public sector can pareto improve welfare contrary to the results in diamond and mirrlees 1971

taxation and international migration of superstars evidence from the european football market we analyze the effects of top tax rates on international migration of football players in 14 european countries since 1985 both country case studies and multinomial regressions show evidence of strong mobility responses to tax rates with an elasticity of the number of foreign domestic players to the net of tax rate around one around 0 15 we also find evidence of sorting effects low taxes attract highability players who displace low ability players and displacement effects low taxes on foreigners displace domestic players those results can be rationalized in a simple model of migration and taxation with rigid labor demand jel f22 h24 h31 j44 j61 l83

the empirical content of the roy model this paper clarifies and extends the classical roy model of self selection and earnings inequality the original roy model based on the assumption that log skills are normally distributed is shown to imply that pursuit of comparative advantage in a free market reduces earnings inequality compared to the earnings distribution that would result if workers were randomly assigned to sectors aggregate log earnings are right skewed even if one sectoral distribution is left skewed most major implications of the log normal roy model survive if differences in skills are log concave however few implications of the model survive if skills are generated from more general distributions we consider the identifiability of the roy model from data on earnings distributions the normal theory version is identifiable without regressors or exclusion restrictions sectoral distributions can be identified knowing only the aggregate earnings distribution for general skill distributions the model is not identified and has no empirical content with sufficient price variation the model can be identified from multimarket data cross sectional variation in regressors can substitute for price variation in restoring empirical content to the roy model

the effect of asymmetric entry costs on bertrand competition abstract by permitting firms to have different entry costs i generalize two previously studied models of two stage entry and pricing amongst bertrand competitors i find that the existing results depend critically on the symmetry assumption for example if firms entry decisions are observed before price setting occurs then total welfare can increase following the introduction of a potential entrant in contrast to the unambiguous welfare reduction found in the symmetric setting if firms entry decisions are unobserved before price setting occurs then the expected price typically decreases or remains unchanged following the introduction of a potential entrant in contrast to the unambiguous price increase found in the symmetric setting in both price setting environments competition increases following the introduction of potential entrants with sufficiently low entry costs a finding that is obscured by focusing on the symmetric models

a note on bertrand competition with asymmetric fixed costs abstract we consider a model of bertrand competition with fixed costs of entry or production we show that contrary to most of the existing literature that focuses on symmetric firms and hence symmetric equilibria if we allow these fixed costs to be different for each firm competition may prevent higher cost firms from entering this market even if the differences in cost are small specifically all firms except for the two with the lowest fixed cost find entry blockaded and the two firms with the lowest fixed costs compete ignoring the threat of potential entry

the contractors game we develop a symmetric information auction model of multiproject contracting with costly bidding and increasing marginal performance costs when there are many potential contractors or only one job there is a zero expected profit symmetric equilibrium in mixed strategies the winning bid at this equilibrium tends to rise perversely with the number of contractors when there are only two potential bidders and either two or three jobs multiple bids of a contractor at equilibrium are negatively correlated with each other the resulting equilibrium outcome tends to divide the market between the contractors in a manner that suggests anticompetitive behavior despite the absence of any collusion

imperfect annuity markets unintended bequests and the optimal age structure of social security benefits the social security program now provides a constant real benefit throughout each retirees lifetime this paper examines whether total welfare would rise if benefits were lower in early retirement years when most individuals have some saving with which to finance consumption and higher in later years when the uncertainty of survival and the absence of actuarially fair private annuities makes the availability of social security benefits more important the analysis shows that there is a potentially important difference between the structure of benefits that would be preferred by the current population of workers and retirees and the structure of benefits that would maximize the steady state level of social welfare this difference reflects the role of unintended bequests the provision of higher benefits to older retirees reduces individually optimal savings and therefore the level of unintended bequests while those bequests may have no value to the retirees they are clearly of value to the young workers who will receive those bequests more generally the system of level benefits raises the steady state level of the capital stock and of total real income the present paper provides an explicit analysis of a case in which the current workers want benefits to increase with age while the social security system that maximizes steady state welfare would provide higher benefits to young retirees than to the very old this abstract was borrowed from another version of this item

optimal non linear pricing with regulatory preference over customer type abstract in this paper we characterize the pareto optimal set of non linear pricing schedules when non negative weights are assigned to each customer type our analysis first compares general non linear tariff schedules and sets of self selecting two part tariffs when there are two customer types and the cost function is linear we then derive optimal sets of two part tariffs for arbitrary numbers of customer types and general cost functions we also consider the sustainability of non linear pricing schedules under the threat of entry of rival firms

technical change wage inequality and taxes this paper considers the normative implications of technical change for tax policy design a task to talent assignment model of the labor market is embedded into an optimal tax problem technical change modifies equilibrium wage growth across talents and the substitutability of talents across tasks the overall optimal policy response is to reduce marginal income taxes on low to middle incomes while raising those on middle to high incomes the reform favors those in the middle of the income distribution reducing their average taxes while lowering transfers to those at the bottom jel d31 h21 h23 h24 j31 o33

dynamic price competition in auto insurance brokerage we analyze brazilian data on auto insurance and document that a about 20 of policies are sold without brokerage commission b over 40 are sold at the highest fee allowed and c the remaining contracts are associated with a spread out distribution of fees static models cannot rationalize these findings we develop a dynamic model of price competition with search and switching costs that reproduces them we use the equilibrium structure to estimate the model parameters and infer the brokers expected earnings the frequency that insurees switch brokers and the counterfactual effects of a price ceiling policy

a bertrand model of pricing and entry abstract we analyze an oligopolistic pricing and entry model in which there is a sunk cost of entry and in which firms outputs are homogeneous firms pure strategies consist of a binary entry decision and conditional on entry a uniform or non linear price schedule there does not exist a pure strategy nash equilibrium in this model so we analyze the symmetric mixed strategy equilibrium the main result is that if there exists a positive sunk cost of entry then an increase in the number of potential competitors puts more probability weight on higher prices this result is counter to the usual intuition that underlies current antitrust policy

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

understanding the evolution of the us wage distribution a theoretical analysis in this paper we propose an analytically tractable overlapping generations model of human capital accumulation and study its implications for the evolution of the us wage distribution from 1970 to 2000 the key feature of the model and the only source of heterogeneity is that individuals differ in theirabilitytoaccumulatehumancapital therefore wageinequalityresultsonlyfromdifferencesin human capital accumulation we examine the response of this model to skill biased technical change sbtc theoretically we show that in response to sbtc the model generates behavior consistent with some prominent trends observed in the us data including i a rise in overall wage inequality both in the short run and long run ii an initial fall in the education premium followed by a strong recovery leading to a higher premium in the long run iii the fact that most of this fall and rise takes place among younger workers iv a rise in within group inequality v stagnation in median wage growth and a slowdown in aggregate labor productivity and vi a rise in consumption inequality that is much smaller than the rise in wage inequality these results suggest that the heterogeneity in the ability to accumulate human capital is an important feature for understanding the effects of sbtc and interpreting the transformation of the us labor markets since the 1970s jel e21 e24 j24 j31

potential competition in the deregulated airlines using a new and unique data set this paper applies a systems approach to the study of potential competition prices and entry relations in airline city pair markets consistent with limit pricing models future entry is directly influenced by current prices current prices thus appear to provide an important signal to potential entrants about the probability of profitable entry while results indicate the existence of barriers to entry these barriers appear to have no independent effects on price beyond there effect on actual competition through increases in concentration copyright 1990 by mit press

personalized pricing and advertising an asymmetric equilibrium analysis we study personalized price competition with costly advertising among n quality cost differentiated firms strategies involve mixing over both prices and whether to advertise in equilibrium only the top two firms advertise earning bertrand like profits welfare losses initially rise then fall with the ad cost with losses due to excessive advertising and sales by the wrong firm when firms are symmetric the symmetric equilibrium yields perverse comparative statics and is unstable our key results apply when demand is elastic when ad costs are heterogeneous and with noise in consumer tastes

differential taxation and occupational choice we develop a framework to study optimal sector specific taxation where each agent chooses an occupation by comparing her skill differential with the tax burden differential across sectors because skills are not perfectly transferable the diamond mirrlees theorem according to which the second best entails production efficiency fails social welfare can be increased by inducing some agents to join the sector in which their productivity is not the highest at the optimum income taxes balance the marginal losses from inter sector migration with the marginal gains from tailoring tax schedules to the distribution of productivities in each sector tagging a calibrated model indicates that sector specific taxation generates substantive welfare gains when skill transferability decreases with income as it enables the government to increase average taxes on high earners with large wage premia

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

bankers and their bonuses we analyse the role of financial sector workers in the huge rise of the share of earnings going to those at the very top of the pay distribution in the uk rising bankers bonuses accounted for two thirds of the increase in the share of the top 1 after 1999 surprisingly bankers share of earnings showed no decline between the peak of the financial boom in 2007 and 2011 three years after the global crisis began nor did bankers relative employment position deteriorate over this period we discuss proposed policy responses such as transparency bonus clawbacks numerical bonus targets and tax

informative price advertising in a sequential search model the purpose of this paper is to study the role and implications of price advertising when shopping trips are costly to consumers to do so we introduce advertising into an optimal sequential search model information about prices is both gathered by consumers and disseminated by firms consumers search sequentially and stores advertise with various intensity when it is in their interest to do so our model has a unique equilibrium exhibiting priee dispersion the model generates predictions about the shape of the price distribution and firms advertising behavior we explore the effects of entry and find that when initial advertising costs at zero level of effort are precisely zero entry drives the equilibrium to the perfectly competitive outcome however when initial marginal advertising costs are positive entry drives prices higher and while the informed consumers almost surely locate competitive prices welfare does not necessarily increase finally we compare the effectiveness of the two informational channels when advertising costs shrink prices become competitive however when search costs shrink prices remain bounded above marginal production costs

a dynamic model of bertrand competition with entry abstract this paper analyzes a simple repeated game of simultaneous entry and pricing we report a surprising property of the symmetric equilibrium solution if the number of potential competitors is increased above two the market breaks down with higher probability and the competitive outcome becomes less likely more potential competition lowers welfare another bertrand paradox the model can also be applied to auctions to explore whether a revenue maximizing auctioneer should restrict the number of bidders if bidder participation is costly

monopoly rents in contestable markets random choices of prices and product characteristics can be used by a contestable monopolist to deter entry and fully extract the monopoly rent we develop this idea in a model of bertrand price competition in equilibrium one firm enters the market and makes choices that are unpredictable to its competitors this prevents price undercuts and keeps other firms out of the market the entrant firm collects the monopoly rent despite the existence of potential competitors this result raises an alert for regulatory practices based on the conventional wisdom that contestability is associated with low prices and profits

negative marginal tax rates and heterogeneity the bulk of the theory of optimal taxation recommends that the marginal tax rate be everywhere positive labor supply is distorted downwards compared with laissez faire the conditions under which the result holds continuous labor supply or intensive margin unobserved productivity constant opportunity cost of work utilitarian planner with a redistributive motive towards lower incomes have been thoroughly investigated jesus seade 1977 1982 ivan werning 2000 martin f hellwig 2007 the purpose of the present paper is to describe how negative marginal tax rates can be optimal keeping with the intensive set up largely studied in the literature when there are multiple dimensions of heterogeneity indeed james a mirrlees 1976 in its section iv indicates along a line that will be pursued further here that the sign of the marginal tax rate cannot be predicted when the agents in the economy differ along several dimensions of heterogeneity workers differ in both their productivities and opportunity costs of work under utilitarianism heterogeneity comes into play through its impact on cardinal utilities how social weights or marginal utilities of income vary with income determines the shape of the optimal tax scheme conditionally on income utility and more importantly its derivative with respect to income may either decrease or increase with work opportunity costs this may vary according to circumstances depending on whether the cost is associated with poor living conditions i e a handicap or reflects a taste for leisure or opportunities outside the labor market such as gardening at home or black market activities for a given income the social weight is proportional to the expected marginal utilities where the expectation is taken over the distribution of work opportunity costs at this income level therefore the social weight curve depends on both the specification of the cardinal utility function and on how the distribution of work opportunity costs changes with income the fact that heterogeneity can blur the redistribution motive through the possible correlation between ability and onerousness of work has been discussed in models where agents have a finite number of types a pioneer work is that of joseph e stiglitz 1982 who shows that the high skilled individual should face a negative marginal tax rate if the low skilled individual s upward incentive constraint binds which is the case if social weights are increasing in type the importance of this observation for policy was pointed out in katherine cuff 2000 who is the first to explicitly link social weights to the opportunity cost of work using alternative choices of cardinal utilities in a model with four types combining two values for productivity and two values for the cost of work robin boadway et al 2002 showed how it can be optimal to have binding upward incentive constraints when high opportunity costs are associated with small social weights

hubs and high fares dominance and market power in the u s airline industry this article estimates the importance of route and airport dominance in determining the degree of market power exercised by an airline the results indicate that an airline s share of passengers on a route and at the endpoint airports significantly influences its ability to mark up price above cost the high markups of a dominant airline however do not create much of an umbrella effect from which carriers with smaller operations in the same markets can benefit the article suggests a number of possible explanations for this asymmetry

nonlinear pricing and exclusion i buyer opportunism we study the exclusionary properties of nonlinear price quantity schedules in an aghion bolton style model with elastic demand and product differentiation we distinguish three regimes depending on whether and how the price charged by the dominant firm depends on the quantity purchased from the rival firm we find that the supply of rival good is distorted downward moreover given the quantity supplied from the rival the buyer may opportunistically purchase inefficiently many units from the dominant firm to pocket quantity rebates we show that the possibility for the buyer to dispose of unconsumed units attenuates the opportunism problem and limits the exclusionary effects of nonlinear pricing

production versus revenue efficiency with limited tax capacity theory and evidence from pakistan to fight evasion many developing countries use production inefficient tax policies this includes minimum tax schemes whereby firms are taxed on either profits or turnover depending on which tax liability is larger such schemes create nonstandard kink points which allow for eliciting evasion responses to switches between profit and turnover taxes using a bunching approach using administrative data on corporations in pakistan we estimate that turnover taxes reduce evasion by up to 60 70 percent of corporate income incorporating this in a calibrated optimal tax model we find that switching from profit to turnover taxation increases revenue by 74 percent without reducing aggregate profits

segmentation advertising and prices this paper explores the implications of market segmentation on firm competitiveness in contrast to earlier work here market segmentation is minimal in the sense that it is based on consumer attributes that are completely unrelated to tastes we show that when the market is comprised by two consumer segments and when there is sufficient variation in the per consumer costs firms need to incur to access the different consumer populations then firms obtain positive profits in symmetric equilibrium otherwise the equilibrium is characterized by zero profits as a result a minimal form of market segmentation combined with advertising cost asymmetries across consumer segments give firms an opportunity to generate positive rents in an otherwise bertrand like environment

migration and wage effects of taxing top earners evidence from the foreigners tax scheme in denmark this paper analyzes the eects of income taxation on the international migration and earnings of top earners using a danish preferential foreigner tax scheme and populationwide danish administrative data this scheme introduced in 1991 allows new immigrants with high earnings to be taxed at a preferential at rate for a duration of three years we obtain two main results first the scheme has doubled the number of highly paid foreigners in denmark relative to slightly less paid and therefore ineligible foreigners this translates into a very large elasticity of migration with respect to 1 minus the average tax rate on foreigners between 1 5 and 2 second we nd compelling evidence of a negative eect of the scheme induced reduction in the average tax rate on pre tax earnings of foreign migrants at the individual level this nding can be rationalized by a matching frictions