An Efficiency Analysis of Proposed State and Local Sales Tax Reforms

With few exceptions, state and local general sales and use taxes are levied primarily on tangible goods. Secular trends in production and consumption of goods and services, as well as legislated exemptions and exclusions, have eroded sales tax bases. A number of reforms designed to reduce base erosion have been proposed, including base broadening, conversion to a consumption tax, and wholesale replacement of sales taxes with income taxes. Each proposal has potential to shore up sales tax bases. From an economic perspective, the policy choice should turn on efficiency, equity, and simplicity. This paper reports on a computer analysis of efficiency effects. The results suggest that (i) base broadening can increase economic efficiency, (ii) converting to a consumption tax base dominates base broadening, (iii) replacing sales taxes with higher income taxes could produce large efficiency losses, (iv) base broadening could generate efficiency gains even if untaxed remote sales become a “sizable” fraction of total sales, and (v) even partial base broadening could produce sizable efficiency improvements.     

Competitive decision making: Two and a half frames

We argue that the study of competitive decision making has been heavily influenced by the frames of reference that are adopted by researchers. The dominant economic frame and the emergent behavioral frame describe largely separate phenomena and have little overlap. Drawing from examples of learning in games and markets, we show how each of these frames falls short of capturing some interesting elements in competitive decisions. We then describe how a coevolutionary perspective may be emerging as an integrative paradigm for the study of competitive decisions.This paper was prepared for the conference, Understanding Competitive Decision Making. Comments by the participants of that conference and Paul Shoemaker are gratefully acknowledged, as are discussions with Colin Camerer, Eldar Shafir, and Sharoni Shafir.     

A reduced lattice model for option pricing under regime-switching

We present a binomial approach for pricing contingent claims when the parameters governing the underlying asset process follow a regime-switching model. In each regime, the asset dynamics is discretized by a Cox–Ross–Rubinstein lattice derived by a simple transformation of the parameters characterizing the highest volatility tree, which allows a simultaneous representation of the asset value in all the regimes. Derivative prices are computed by forming expectations of their payoffs over the lattice branches. Quadratic interpolation is invoked in case of regime changes, and the switching among regimes is captured through a transition probability matrix. An econometric analysis is provided to pick reasonable volatility values for option pricing, for which we show some comparisons with the existing models to assess the goodness of the proposed approach.     

Fair Valuation of Equity-Linked Policies under Insurer Default Risk

Abstract

We consider the problem of computing the fair value of equity-linked policies with an interestrate guarantee when the insurer is subject to credit risk. The framework is developed based on modern financial theory using the no-arbitrage principle. In this context, an equity-linked policy is considered as a vulnerable contingent claim that expires before maturity if the firm asset value reaches a prespecified default threshold depending on the firm’s liabilities. We derive a closedform formula in a continuous-time environment to compute the fair value of the contract. We also develop a discrete-time model that allows us to address fair evaluation when the policy embeds a surrender option.     

Exploring professionals' motivation to lead: a cross-level study in the healthcare sector

The extant leadership research has paid increasing attention to the concept of motivation to lead (MTL) as an individual construct that strongly affects leadership processes and behaviors. However, despite its importance, scant knowledge is available about how individual characteristics and organizational structural features interact in influencing MTL in professional-based organizations. This article contributes to this line of research by adopting a multilevel perspective to study the MTL among individual professionals in the healthcare sector. We collected data from a sample of 791 physicians nested in 44 departments belonging to 27 hospitals. Using the hierarchical linear model, we tested the impact of individual and organizational variables on the motivation of physicians to engage in managerial positions. Our findings demonstrate that the physicians' MTL was positively associated with their individual self-efficacy. Departmental decentralization interacted with this self-efficacy, such that the effect of self-efficacy on the MTL was significantly lower when decentralization was high. We discuss the implications of these findings for human resource management and organizational (re)design within professional organizations.     

Individual Differences in the Disposition Effect

The authors model the role of personality traits in explaining the disposition effect building on realization utility theory and Big 5 model and moving from an aggregate level to interindividual differences. The experimental analysis, combining NEO Revised Personality Inventory measures with individual financial data from a trading simulation run by 230 individuals in China and Italy, shows that the disposition effect is driven by 2 distinct psychological processes, one related to holding losers and the other to selling winners. These 2 behavioral mechanisms are uncorrelated and influenced by different personality traits. Controlling for different demographic variables, the authors show (a) a greater sensitivity of the rewarding system that motivates “extroverts” to quickly sell the stock at gain to receive a burst of utility; (b) a tendency for “conscientious” subjects to suppress impulsivity, patiently waiting for higher cumulative returns; and (c) the importance of “openness to experience” to better value information to achieve higher outcomes.     

Increasing inequality,consumer credit and financial fragility in an agent based macroeconomic model

We investigate the interplay between increasing inequality and consumer credit in a complex macroeconomic system with financially fragile heterogeneous households, firms and banks. Simulation results show that there are pros and cons of introducing consumer credit: on the one hand, for a certain time, it leads to lower unemployment through boosting aggregate demand; on the other hand, it accelerates the system tendency to the crisis. Since the increase of financial profits goes with a decline of households’ real wealth, a policy trade-off emerges.     

CONFIDE: A Collective Decision-Making Procedure Using Confidence Estimates of Individual Judgements

An algorithm (termed CONFIDE) is proposed that may capture many of the benefits of group decision making without the necessity of face-to-face interaction. The algorithm allows individual decision makers to differentially weight the contributions from members according to the confidence with which each member holds to their opinions. The CONFIDE algorithm is compared to both face-to-face group decisions and simple averaging of group members opinions on the Lost-at-Sea ranking task. Results indicate that, in terms of decision quality, the CONFIDE algorithm produces solutions equal to that of the face-to-face group decision method and significantly better than the solution achieved by simple averaging of group members responses.     

Understanding bus rapid transit route ridership drivers: An empirical study of Australian BRT systems

Bus Rapid Transit (BRT) systems are an increasingly popular public transport option internationally. They provide rail-like quality for bus services for a fraction of the cost of fixed rail. Many claims of high and increasing ridership have resulted from BRT system development; however, it is unclear exactly which aspects of BRT system design drive this. This paper explores whether BRT design features, among other influences, significantly increase ridership above and beyond the impact of service levels. It does so using a series of regression models undertaken on 77 BRT and non-BRT bus routes in Australia which is known for its diversity in BRT route design. Explanatory variables used included service level, frequency, speed, stop spacing, share of segregated right of way, vehicle accessibility, employment and residential density, car ownership levels and BRT infrastructure quality. Five models explored the role of these variables. Two models found that service level dominates predictions of boardings per route km although they suffer from endogeneity. Further models control for this influence by modelling boardings per vehicle km. Overall results suggest that some BRT infrastructure treatments such as right of way have a significant impact on ridership but the influence of infrastructure is within the context of high service levels. The role of accessible vehicles has also been highlighted in this research, although more research is needed to clarify this influence. The paper concludes with a discussion of the various influences on ridership and recommendations for existing policy and future research.