Optimal Social Insurance with Linear Income Taxation*

We study optimal social insurance aimed at insuring disability risk in the presence of linear income taxation. Optimal disability insurance benefits rise with previous earnings. Optimal insurance is incomplete even though disability risks are exogenous and verifiable so that moral hazard in disability insurance is absent. Imperfect insurance is optimal because it encourages workers to insure themselves against disability by working and saving more, thereby alleviating the distortionary impact of the redistributive income tax on labor supply and savings.     

Politics of Trade in the USA and in the Obama Administration: Implications for Asian Regionalism

Over the next four years, the Obama administration will face a series of strategic choices in forging policies to respond to a growing momentum for advances in Asian regional structures. Though faced with domestic political challenges; not least from within his own Democratic party – President Obama and his advisers will need to set a course for the reassertion of US leadership in constructing a trans-Pacific vision, through new US-based free trade agreements, signing on to existing agreements such as the P-4 (Singapore, New Zealand, Brunei, the Philippines), or consolidating existing free trade agreements among Asia Pacific Economic Cooperation (APEC) nations. In pursuing this vision, the US should take advantage of the fact that the next three APEC leaders meetings are in Singapore (2009), Japan (2010), and the USA (2011); a sequence ripe for synergistic teamwork.     

Pension reforms and saving gains in the United Kingdom

The empirical validity of the effect of pension reforms on domestic savings in the UK has been investigated using an Auto‐regressive Distributed Lag (ARDL) model capable of testing for the existence of a long‐run relationship regardless of whether the underlying time series are individually I(1) or I(0). The total savings response to change in pension savings is positive and significant, but an increase in occupational pension saving appears offset by a decrease in other forms of saving. This paper concludes that there is no firm evidence that aggregate savings increase considerably because of privately funded pension schemes.     

A note on contribution games with loss functions

Decisions on joint funding of continuous public goods between two agents often involve heterogeneous targets. We introduce loss functions in a contribution game in order to study the effect of this conflict. Unlike Varian (1994), joint contribution occurs only if the players’ targets are sufficiently close and the sequential game reduces free riding problems, while total contribution is higher in the simultaneous game.     

Keeping up with the Joneses, consumer ethnocentrism, and optimal taxation

This paper sets up a two-good (domestically- and internationally-produced goods) model of a small open economy with consumption externalities and uses it to examine the optimal taxation. Since keeping up with the Joneses leads an individual consumption's to impose a negative externality on the consumption of others, a consumption tax and tariff are thereby socially desirable to correct this distortion. Due to the fact that the government has to account for additional distortion caused by consumer ethnocentrism and that keeping up with the Joneses in the consumption of domestic goods tends to reinforce the influence of ethnocentrism on the purchase of domestic products, the consumption of imported goods is subject to a higher tariff rate because of the cross-market externality. Of interest, if consumption only involves an own-market externality, there is no cyclical consequence for the optimal taxes. However, if consumption involves both own- and cross-market externalities, the optimal tariff is state-contingent and, more specifically, is countercyclical.     

Military reserves and social welfare

We consider the contribution of reserves to the efficient mobilization of military manpower. Our analysis suggests that offering recruits an option to serve as reservists enhances social welfare if there is a sufficiently strong relationship between recruit performance in the military and their expected civilian income.     

Social security and economic integration

This letter analyzes the impact of economic integration on capital accumulation and capital flows when countries differ in their social security systems. Funding and early retirement both foster capital accumulation relative to pay-as-you-go pensions with flexible retirement. When economies integrate, both imply capital outflow possibly resulting in utility losses.     

FINITELY REPEATED PRISONERS' DILEMMA WITH SMALL FINES: THE PENANCE CONTRACT*

This paper investigates finitely repeated prisoners' dilemma games with explicit contractual devices. It shows that full collusion can be achieved in a unique manner by incentivizing the players' final‐period play with small fines. The incentivizing modality is the penance contract, by which a player is penalized if and only if he deviates from the penance strategy in the final period. Using this contractual agreement brings the penance strategy profile into unique subgame perfect equilibrium in the entire game and achieves full collusion without being invalidated by renegotiation.     

Birthplace favoritism and the distribution of budget amendments in Brazil: Evidence from nondistrict elections

In this paper, we investigate whether federal deputies in Brazil display birthplace favoritism in allocating discretionary resources to municipalities via budgetary amendments. The data include information on three electoral cycles and on more than five thousand municipalities. Unlike previous research, we match data on an elected deputy’s share of votes by municipality and the value of the legislative amendments per capita obtained for each municipality by that deputy. Our results suggest that although resource distribution through amendments is smaller than targeted pork spending, birthplace favoritism is still an important driver of local politicians’ behavior. On average, when a Brazilian municipality is the place of birth of a deputy, it obtains 8.7% more amendments per capita than its counterparts. Additionally, our findings suggest that some deputies display birthplace favoritism because they plan to run for mayor in their hometown in subsequent elections.