Probability of survival in a random exchange economy with dependent agents

Summary. In this paper I analyze the general equilibrium in a random Walrasian economy. Dependence among agents is introduced in the form of dependency neighborhoods. Under the uncertainty, an agent may fail to survive due to a meager endowment in a particular state (direct effect), as well as due to unfavorable equilibrium price system at which the value of the endowment falls short of the minimum needed for survival (indirect terms-of-trade effect). To illustrate the main result I compute the stochastic limit of equilibrium price and probability of survival of an agent in a large Cobb-Douglas economy. Received June 7, 2001; revised version: January 7, 2002 RID="*" ID="*" I would like to thank Mukul Majumdar and Thomas DiCiccio for helpful discussion and an anonymous referee for valuable comments and suggestions.     

Comparing Innovation Capability of Small and Medium‐Sized Enterprises: Examining the Effects of Organizational Culture and Empowerment

This study analyzes the impact of organizational culture and empowerment on innovation capability, and examines the peculiarities of these effects. The study's hypotheses are tested by applying both individual and firm‐level analyses to survey data collected from 743 employees from 93 small and medium‐sized firms located in Turkey. For medium‐sized enterprises on both the individual and firm level of analysis, results suggest that collectivism and uncertainty avoidance are positively associated with empowerment, whereas power distance is negatively related to empowerment. Assertiveness focus has no relations with empowerment and innovation capability, yet among cultural dimensions, only uncertainty avoidance is related to innovation capability. For small‐sized enterprises, findings suggest that both power distance and uncertainty avoidance are linked to both empowerment and innovation capability on the individual level, whereas two new paths between collectivism and innovation capability and between assertiveness focus and empowerment are found on the firm level. Also, empowerment is found to be positively related to innovation capability for both small and medium‐sized enterprises (SMEs) on both the individual and firm level. In terms of managerial practice, our study helps clarify the key role played by cultural dimensions in the process of shaping an empowering and innovative work environment. Findings also reveal that managers should focus on participative managerial practices (e.g., empowerment) to promote innovation capability of SMEs.     

Structure of the optimal income tax in the quasi-linear model

Existing numerical characterizations of the optimal income tax have been based on a limited number of model specifications. As a result, they do not reveal which properties are general. We determine the optimal tax in the quasi-linear model under weaker assumptions than have previously been used; in particular, we remove the assumption of a lower bound on the utility of zero consumption and the need to permit negative labor incomes. A Monte Carlo analysis is then conducted in which economies are selected at random and the optimal tax function constructed. The results show that in a significant proportion of economies the marginal tax rate rises at low skills and falls at high. The average tax rate is equally likely to rise or fall with skill at low skill levels, rises in the majority of cases in the centre of the skill range, and falls at high skills. These results are consistent across all the specifications we test. We then extend the analysis to show that these results also hold for Cobb-Douglas utility.     

Independent and joint effects of audit partner tenure and non-audit fees on audit quality

We examine the individual and joint effects of auditors’ non-audit services (NAS)/abnormal NAS fees and length of audit partner tenure on audit quality. Our results raise questions about the ‘one size fits all’ approach imposed by the current audit partner rotation requirement in Australia as a result of (1) a learning differentiation that we observe between Big 4 and non-Big 4 auditors and (2) higher discretionary accruals associated with non-Big 4 auditors. We find abnormal NAS fees to have a positive association with both absolute and positive (income-increasing) values of discretionary accruals for firms with short audit partner tenure. NAS/abnormal NAS fees are also negatively associated with the issuance of going concern opinions to financially distressed firms when partner tenure is short. In terms of policy implications, regulators are able to gauge the efficacy of the CLERP 9 reforms which currently impose a five year mandatory audit partner rotation requirement.     

Tax Principles,Product Differentiation and the Nature of Competition

We analyze the choice between the origin and destination principles of taxation when there is product differentiation and Bertrand competition. If taxes are redistributed to consumers and demand is linear the origin principle dominates the destination principle whatever the degree of product differentiation and extent of economic integration. With nonlinear demand the origin principle dominates if there is sufficient economic integration. When the social value assigned to tax revenue is higher than the private value, the destination principle dominates for intermediate values of product differentiation and economic integration. The same results are also shown to hold with Cournot competition. JEL Code: F12, H20     

Household tax evasion

Household members share public goods and make intra-household transfers. We show how these features of the household interact with the tax evasion decision, and identify the dimensions in which household evasion differs from individual evasion. In the model we present two members of a household choose how much to contribute to a household public good and how much self-employment income to evade. We are interested in how different evasion possibilities interact with the contribution decisions to the household public good and the role of income transfers within the household. We show the household evasion decision differs from the individual decision because it affects the outcome of the household contribution game. When household members are taxed as individuals neutrality applies when choices are not constrained. If the evasion level of one household member is constrained then an income transfer can generate a Pareto improvement. When the household members are jointly taxed there is a couple constraint on strategies and corner solutions can emerge.     

APPLICATIONS OF BEHAVIOURAL ECONOMICS TO TAX EVASION

The paper reviews recent models that have applied the techniques of behavioural economics to the analysis of the tax compliance choice of an individual taxpayer. The construction of these models is motivated by the failure of the Yitzhaki version of the Allingham–Sandmo model to predict correctly the proportion of taxpayers who will evade and the effect of an increase in the tax rate upon the chosen level of evasion. Recent approaches have applied non‐expected utility theory to the compliance decision and have addressed social interaction. The models we describe are able to match the observed extent of evasion and correctly predict the tax effect but do not have the parsimony or precision of the Yitzhaki model.     

Uniform Versus Discriminatory Tariffs

We analyze the non‐cooperative interaction between two exporting countries producing differentiated products and one importing country when governments use optimal policies to maximize welfare. The analysis includes product differentiation, asymmetric costs, and Bertrand competition. For identical exporting countries we demonstrate that the importing country always prefers a uniform tariff regime while both exporting countries prefer a discriminatory tariff regime for any degree of product differentiation. If countries are asymmetric in terms of production cost then the higher‐cost exporter always prefers the discriminatory regime but the lower‐cost exporter prefers the uniform regime if there is a significant cost differential. With cost asymmetry the announcement of a uniform tariff regime by the importer is not a credible strategy since there is an incentive to deviate to discrimination. This implies an international body can play a role in ensuring that tariff agreements are respected.