A key feature of modern dynamic economies is imperfect competition. Some imperfect competition is due to institutions such as patents and copy-rights that allow Þrms to exercise market power over the sale of products they invent. Some imperfect competition is due to various forms of increas-ing returns to scale and product differentiation. Since market power is an essential feature of innovation and growth in the new economy (as it was in the old economy) we need to know how imperfect competition affects the conventional wisdom on tax policy. We argue that it has particularly striking implications for the taxation of capital. The current consensus among economists is that investment should be lightly taxed with most tax revenues coming from labor and consumption taxation; see Kenneth L. Judd (1999) for a discussion of this literature. These analyses assume perfect competition in all markets. Even though imperfect competition is common, economists generally prefer competitive models since analyses with imperfect competition usually get mired in strategic details
The research for which George Akerlof, Mike Spence, and I are being recognized is part of a larger research program which, today, embraces hundred, perhaps thousands, of researchers around the worl...
Which is the tighter constraint on private sector investment: weak property rights or limited access to external finance? From a survey of new firms in post-communist countries, we find that weak property rights discourage firms from reinvesting their profits, even when bank loans are available. Where property rights are relatively strong, firms reinvest their profits; where they are relatively weak, entrepreneurs do not want to invest from retained earnings.
Survey evidence on the importance of bequests is fairly consistent. Dorothy Projector and Gertrude Weiss (1966), using the 1963 Survey of Financial Characteristics of Consumers, reported that only 17 percent of families had received any inheritance. Paul Menchik and Martin David (1983), using probate records of men who died in Wisconsin between 1947 and 1978, estimated that the average intergenerational bequest amounted to less than one-fifth of average household wealth in 1967 and about 10 percent of the average household wealth of families 65 or over in age. Michael Hurd and Gabriella Mundaca (1989) found from the 1984 Survey on the Economic Behavior of the Affluent data that only 12 percent of households in the top 10 percent of the income distribution reported that more than half their wealth came from gifts or inheritances, and only 9 percent in the 1983 Survey of Consumer Finances. However, William Gale and J. K. Scholz (1994), using the 1983 Survey of Consumer Finances, estimated that at least 51 percent of household wealth is accounted for by inheritances and other intentional wealth transfers. II. Data Sources and Methods
In a recent publication in this journal, YeonKoo Che and Seung-Weon Yoo (2001) have derived important implications of optimal contracts for teams by considering repeated interactions among multiple agents. First, in Proposition 1 they have argued that in a static setting the optimal contract displays the feature of relative performance evaluation (henceforth, RPE), which means that the wage of an agent is decreased when his peer performs well. Second, they have shown that in a dynamic setting the optimal contract may be based on joint performance evaluation (henceforth, JPE), which means that the wage of an agent is increased when his peer performs well, even in the parameter range in which RPE is optimal in a static setting.
In this paper we model contract incompleteness “from the ground up,” as arising endogenously from the costs of describing the environment and the parties' behavior. Optimal contracts may exhibit two forms of incompleteness: discretion, meaning that the contract does not specify the parties' behavior with sufficient detail; and rigidity, meaning that the parties' obligations are not sufficiently contingent on the external state. The model sheds light on the determinants of rigidity and discretion in contracts, and yields rich predictions regarding the impact of changes in the exogenous parameters on the degree and form of contract incompleteness.
Terror as a Bargaining Instrument: A Case Study of Dowry Violence in Rural India by Francis Bloch and Vijayendra Rao. Published in volume 92, issue 4, pages 1029-1043 of American Economic Review, September 2002
There has been substantial recent interest in determining why there is cooperation in public goods experiments even in environments that provide all subjects with the incentive to free ride (see e.g., John O. Ledyard, 1995). Theories used to explain such cooperation generally posit either that subjects are “confused” in the sense that they make errors or do not understand the game’s incentives, or that subjects contribute due to social factors such as altruism and reciprocity. Although several authors have pointed out the importance of distinguishing between these alternatives, the roles that confusion and social motives play in determining public contributions remain poorly understood. This paper provides new evidence on the way that confusion and social motives determine contributions in public goods games by reporting data from experiments that use a new design with the Voluntary Contribution Mechanism (VCM). Two important and often replicated findings in the experimental public goods literature are (1) that subjects’ public contributions are much greater than predicted by standard economic theories of free-riding and (2) that these contributions decay over the course of multiple-round games (see e.g., Douglas D. Davis and Charles A. Holt, 1993). Models that employ social factors to explain cooperation and its decay usually assume that subjects are motivated by altruism, reciprocity, or fairness (see e.g., Andreoni, 1990; Rachel T. A. Croson, 1998; Anna Gunthorsdottir et al., 2001). It has been argued, for instance, that subjects make contributions in order to elicit like contributions from reciprocators in subsequent rounds and that decay in public contributions might result from “frustrated attempts at kindness” (Andreoni, 1995 p. 892). Specifically, because there is generally heterogeneity in the willingness to contribute to the public good, initially cooperative players will likely reduce their public contributions after being grouped with relatively low contributors. In contrast, confusion theories postulate that players make public contributions either in error or because they do not understand how to pursue their self-interest. These theories argue that high initial contributions decay primarily because subjects gradually come to understand the game’s incentives. Recently, Andreoni (1995) conducted an interesting series of experiments in the first and, to our knowledge, only effort to discriminate between these competing theories of cooperative play. He provides two reasons that doing this is important. The first is that knowing the relative importance of confusion and social motives in generating cooperative decay can provide a useful guide to future research. While Andreoni argues that such knowledge could be used to inform research on learning models, note also that to the extent confusion is found to be important, shedding light on the way different sorts of instructions affect confusion could help to improve pedagogics. A second compelling reason Andreoni gives is that the outcomes of experiments designed to test theories of social giving are difficult to interpret if confusion is a primary source of cooperation. * Houser: Department of Economics and Economic Science Laboratory, University of Arizona, Tucson, AZ 85721; Kurzban: Economic Science Laboratory, University of Arizona, Tucson, AZ 85721. We thank Mark Isaac, Kevin McCabe, David Porter, Vernon Smith, Bart Wilson, seminar participants at the University of Arizona, and two anonymous referees for valuable comments on this research. The authors gratefully acknowledge the research support of fellowships from the International Foundation for Research in Experimental Economics. This research was supported by Russell Sage Foundation Grant No. 98-00-01. The authors are responsible for any errors. 1 See, for example, James Andreoni (1995), Martin Sefton and Richard Steinberg (1996), and Thomas R. Palfrey and Jeffrey E. Prisbrey (1997). 2 This paper focuses on only standard linear games in which to contribute zero to the public good is the dominant strategy.
Accounting for Innovation and Measuring Innovativeness: An Illustrative Framework and an Application by Jacques Mairesse and Pierre Mohnen. Published in volume 92, issue 2, pages 226-230 of American Economic Review, May 2002