Contest Theory and Sport

Contrary to most sports fans economists tend to view tournamentsnot only as a mechanism to identify the most able and most talentedathlete(s) but also as an instrument to increase the athletes'effort levels by designing an adequate compensation system thattakes into account the specificities of the contest under consideration.The paper proceeds in two different steps: First, it reviewsthe available evidence on sports contests and identifies somepuzzles that have not yet been resolved in the literature (theempirical separation of selection and incentive effects andthe impact of incentive pay in team settings). Second, it addressesthese puzzles and offers some new evidence supporting the basicassumptions offered by economic theory.     

Responsibility in the interconnected economy

This article seeks to establish a link between the field of business ethics and information ethics by exploring the connection between responsibility and the Internet from an economic perspective. This link finds its expression in the moral theory of Discourse Ethics as suggested by German philosophers such as Juergen Habermas and Karl‐Otto Apel. The term responsibility points in the direction of communication and therefore leads easily to discourse ethics. The economy in general and most economic practices also seem to be intimately linked to questions of responsibility. The growing spread and importance of the Internet poses new challenges and problems but also creates new possibilities for ethics as well as for the economy. Here several of these new developments are analysed and their impact on ethics as well as economy assessed. Consequences for the use and development of information technology are considered.     

Why Capital Income Taxes Survive in Open Economies: The Role of Multinational Firms

This paper discusses the role of multinational firms and double taxation treaties for corporate income taxation in open economies. We show that it is optimal for a small open economy to levy positive corporate income taxes if multinational firms are taxed according to the full taxation after deduction system or the foreign tax credit system. Positive corporate taxes also occur in the asymmetric case where some countries apply the exemption system and others apply the tax credit system. If all countries apply the exemption system, the optimal corporate income tax is zero. We also show that, under tax competition, corporate income taxes are not necessarily too low from the perspective of the economy as a whole. While the undertaxation result is confirmed for the case of the exemption system, tax rates may also be inefficiently high if the deduction or the credit systems are applied.     

Innovation or imitation? The effect of spillovers and competitive pressure on firms’ R&D strategy choice

In this paper a firm’s R&D strategy is assumed to be endogenous and allowed to depend on both internal firm characteristics and external factors. Firms choose between two strategies, either they engage in R&D or abstain from own R&D and imitate the outcomes of innovators. This yields three types of equilibria, in which either all firms innovate, some firms innovate and others imitate, or no firm innovates. Firms’ equilibrium strategies crucially depend on external factors. We find that the efficiency of intellectual property rights protection positively affects firms’ incentives to engage in R&D, while excessive competitive pressure has a negative effect. In addition, smaller firms are found to be more likely to become imitators when the product is homogeneous and the level of spillovers is high. Regarding social welfare our results indicate that strengthening intellectual property protection can have an ambiguous effect. In markets characterized by a high rate of innovation a reduction of intellectual property rights protection can discourage innovative performance substantially. However, a reduction of patent protection can also increase social welfare because it may induce imitation. This indicates that policy issues such as the optimal length and breadth of patent protection cannot be resolved without taking into account specific market and firm characteristics.