Aging: Some Pleasant Fiscal Arithmetic

Projections of age-related public expenditure growth have raised widespread concerns about fiscal sustainability. This paper examines how total expenditure would develop under four policy rules on public expenditure growth. Some simple arithmetic of expenditure, GDP, and population is reviewed and applied in simulations for 19 OECD countries over 2000–50. A general and a specific conclusion arise from the results. Generally, long-term expenditure projections could benefit from revisiting common assumptions on non-age-related expenditure growth. Specifically, realistic gradual adjustment in non-age-related expenditures could go a long way towards maintaining fiscal sustainability under age-related spending pressures.

Regulating Multiple Polluters: Deterrence and Liability Allocation

We consider regulation of multiple polluters when individual emissions are unobservable. The tension between pollution deterrence and funding of remediation is examined under two constraints: that penalty revenues fully fund remediation costs and that the regulator cannot make positive transfers to firms. To isolate the effect of increasing the number of polluters, we compare an industry consisting of a single large firm with one in which many small firms in aggregate mimic the large firm. Contrary to previous findings, both the number of firms and the ability to monitor individual firms affect the welfare of a large class of regulators.     

Import Quotas and Entry Deterrence

Using a simple version of the Milgrom and Roberts entry deterrence model, it is shown that adjusting a quota so that a greater volume of imports is allowed, can facilitate entry into the domestic industry. That is, the easing of a quota, can cause the domestic incumbent to shift from deterring entry to accommodating entry.     

Negotiated Enforcement and Credible Deterrence

This paper develops a model of law enforcement in which indicted offenders and the prosecutor can negotiate the penalty prior to the completion of the investigation. The analysis focuses on the credibility of the conviction threat: the prosecutor cannot commit to any predetermined level of investigative effort should the negotiation fail. The settlement stage introduces several new features of the optimal enforcement policy, including the possibility that maximal sanctions may not be optimal. We show that the screening process associated with the negotiation stage reduces the incentives for the prosecutor to undertake thorough investigations and increases the rate of noncompliance.     

Takeover Contests, Toeholds and Deterrence

We consider a setting in which two potential buyers, one with a prior toehold and one without, compete in a takeover modeled as an ascending auction with participating costs. The toeholder is more aggressive during the takeover process because she is also a seller of her own shares. The non-toeholder anticipates this extra-aggressiveness of the toeholder. Thus, he is deterred from participating unless he has a high valuation for the target company. This leads to large inefficiency losses. For many configurations, expected target returns are first increasing then decreasing in the size of the toehold.     

Deterrence and knowledge of the law: The case of drunk driving

While it is necessary that researchers make choices in order to estimate inequality, the reasons for the measurement choices and their impact on inequality estimates have not been widely assessed. This paper uses Canadian data from the 1980s to analyse whether inequality estimates are sensitive to common measurement choices. Seemingly minor technical choices about the treatment of outlying observations, such as the use of top-income coded data, exclusion of very high and low observations, and differences among data sets in the capture of very high observations affect estimates of inequality. Further, the impact of the treatment of outlying observations on inequality estimates are at least as large as the impact of measurement choices of a conceptual nature, such as the income definition and population selection. The sensitivity of inequality estimates to measurement choices, which often remain invisible, affect inferences about the relative degree of inequality at a given point in time among countries and changes over time.     

Entry Deterrence and the Efficient Component Pricing Rule

This note comments on the article 'Entry and Entry Deterrence under the New Access Code' by Amiti and Maddock, published in the Australian Economic Review, 3rd quarter 1996. It is found that Amiti and Maddock do not show that efficient component pricing by an incumbent vertically-integrated monopolist will deter socially efficient entry of a new competitor.     

Managing Foreign Direct Investment: Commitment, Deterrence, And Diversion

The paper models the multinational choice between foreign direct investment in and exporting to a domestic market as an equilibrium outcome of strategic play between domestic and foreign firms. Two cases are considered, one in which the domestic firm can precommit to output levels (as, for example, through investment in a distribution network), and one in which such precommitment is not possible. The domestic firm's strategy in the case of precommitment includes aggressive efforts to deter or divert foreign investment and results in fewer observed equilibria with foreign investment than would otherwise occur. Tariffs designed to switch the foreign decision from exporting to direct investment may lead instead to monopolization of the market by the domestic firm.     

税收规避与私法行为

税收规避是税法中的一个特殊现象,是纳税人利用私法赋予的选择空间进行违背税法宗旨的规避行为,因此要对其进行治理必然涉及到私法与税法两个方面的限制。私法与公法有着性质上的区别,但在税收这一问题上,两者又有着不可割裂的联系,私法行为是税收行为得以进行的重要前提,特别是私法中的虚伪行为,其表现形式与税收规避有着相似之处,将之与税收规避进行比较分析,探求私法与公法在法理上的共同点,有利于为我们对治理税收规避进行合理、合法的解释。     

Deterrence, Lawsuits, and Litigation Outcomes Under Court Errors

This article presents a strategic model of liability and litigationunder court errors. Our framework allows for endogenous choiceof level of care and endogenous likelihood of filing and disputes.We derive sufficient conditions for a unique universally divinemixed-strategy perfect Bayesian equilibrium under low courterrors. In this equilibrium, some defendants choose to be grosslynegligent; some cases are filed; and some lawsuits are dropped,some are resolved out of court, and some go to trial. We findthat court errors in the size of the award, as well as damagecaps and split awards, reduce the likelihood of trial but increasefiling and reduce the deterrence effect of punitive damages.We derive conditions under which the adoption of the Englishrule for allocating legal costs reduces filing.     

Campaign War Chests, Entry Deterrence, and Voter Rationality

It is often claimed that the accumulation of "war chests" by incumbents deters entry by high–quality challengers in Congressional elections. This paper presents a game–theoretic analysis of the interaction between an incumbent, potential challengers, an interest group, and a representative (rational) voter, where the incumbent's "quality" (or "legislative effectiveness") is known to the interest group, but not to the voter or to potential challengers. Under certain conditions, a perfectly revealing equilibrium exists; the incumbent signals her quality by raising funds from the interest group to accumulate a war chest. The entry deterrence effect thus operates solely through the role of war chests in signaling incumbent quality.     

Policy Rules and Monetarist Arithmetic

This note demonstrates the existence of an important equilibrium path overlooked in the literature on monetarist arithmetic. Pleasant monetarist arithmetic is possible when the interest‐elasticity of money demand exceeds unity. In this case, tight money may lead to a transitory increase in seigniorage, the retirement of government debt, and lower inflation in both the short run and the long run. The set of equilibrium paths is sensitive, however, to the form of the policy rule. Pleasant monetarist arithmetic is not an equilibrium if the policy rule fixes the share of the fiscal deficit financed by seigniorage. Both pleasant monetarist arithmetic and the tight‐money paradox are equilibrium paths when the government's commitment to low money growth is conditional on inflation remaining below its previous level.     

Strategic Reaction of Vertically Integrated Firms to Downstream Entry: Deterrence or Accommodation

The purpose of this paper is to analyze strategic behavior of vertically integrated firms when there is downstream entry, taking into account the balance between competition in the market and competition for the market. This analysis can serve to explain diverse distributional structures, including the coexistence of vertically integrated firms and independent retailers. And it shows that the relative efficiency of downstream entrants and the level of competition among incumbents are two major factors in determining equilibrium configuration.     

A Walrasian Theory of Commodity Money: Paradoxical Results

This note analyses some implications of the model of commodity money described by Banerjee and Maskin ( Quarterly Journal of Economics , vol. 111, 1996, pp. 955-1005) which may seem paradoxical. In order to do this, a general production cost structure is incorporated into the model. Two different results are highlighted. First, the existence of technologies that make counterfeiting a commodity more difficult may exclude it from being used as a medium of exchange. Second, allocative distortions due to problems of asymmetric information may become larger in the presence of such technologies.     

Competition Between Exclusive Religions: The Counter‐Reformation As Entry Deterrence

This article sets forth a theory of competition between exclusive religions as an entry deterrence game, in which the incumbent may find it profitable not to accommodate but to deter the competitor's entry by precommitting to sufficient capacity expansion in the event of entry. If entry costs are high enough, deterrence is optimal and the incumbent remains a monopolist, although the entry threat distorts its effort upward. The model is then applied to the Catholic Church's reaction to the Protestant Reformation. It is argued that the model provides a better fit to the historical data of the Counter‐Reformation than the price‐cutting model proposed by economists Ekelund, Hébert and Tollison ( 2004 , 2006 ).     

Least-Cost Avoidance: The Tragedy of Common Safety

This article shows that the least-cost avoider approach in tortis not necessarily the optimal way to attain least-cost avoidancewhen accidents can be avoided by either of two parties. Whenparties do not observe each other's costs of care at the timeof the accident and are unable to determine which party is theleast-cost avoider, they fail to anticipate the outcome of theadjudication. Under these circumstances, accident avoidancebecomes a commons problem because care by each individual partyreduces the prospect of liability for both parties. As a result,parties suboptimally invest in care. We show that regulationremoves this problem and is superior to tort liability bothwhen parties act simultaneously and when they act sequentially.We further examine how different liability rules perform inthis respect. (JEL K13, K32)     

Paradoxical trade patterns and terms of trade

It is shown that, when a monopoly is present in a two-country, two-commodity world, the terms-of-trade do not necessarily fall in between the pre-trade relative prices of the two countries, and that these pre-trade prices do not unequivocally determine the pattern of trade.     

On the Optimality of Restricting Credit: Inflation Avoidance and Productivity

The paper presents a model in which the consumer uses up resources in order to avoid the inflation tax through the use of exchange credit. In an example economy without capital, the credit tax is optimal when the resource loss from credit use dominates the productivity effect and the inefficiency of substitution towards leisure as a result of the credit tax. The paper also examines second-best inflation policy in this context, given a credit tax. It then extends the economy to an endogenous growth setting and shows how restricting inflation avoidance can increase productivity.
JEL Classification Numbers: E13, E51, E61, G21.