In an economy with weak economic and political institutions, the major institutional choices are made strategically by oligarchs and dictators. The conventional wisdom presumes that as rent-seeking is harmful for oligarchs themselves, institutions such as property rights will emerge spontaneously. We explicitly model a dynamic game between the oligarchs and a dictator who can contain rent-seeking. The oligarchs choose either a weak dictator (who can be overthrown by an individual oligarch) or a strong dictator (who can only be replaced via a consensus of oligarchs). In equilibrium, no dictator can commit to both: (i) protecting the oligarchs' property rights from the other oligarchs and (ii) not expropriating oligarchs himself. We show that a weak dictator does not limit rent-seeking. A strong dictator does reduce rent-seeking but also expropriates individual oligarchs. We show that even though eliminating rent-seeking is Pareto optimal, weak dictators do get appointed in equilibrium and rent-seeking continues. This outcome is especially likely when economic environment is highly volatile.
We present results from an experiment with multiple public goods, where each good produces benefits only if total contributions to it reach a minimum threshold. The presence of multiple public goods makes coordination among participants more difficult, discouraging donor participation and decreasing the likelihood of any public good being effectively funded. Applied to the case of fundraising, the results show how overall donations and the number of effectively funded projects may both decrease as the total number of projects vying for funding increases. The analysis considers whether making one of the contribution options salient, either through its merits or by arbitrarily choosing one to feature during the experiment, helps overcome the increased coordination problem. The results have implications for the growing popularity of crowdfunding websites, and suggest benefits to these sites from helping donors compare and identify the most promising projects. © 2015 Elsevier B.V.
We investigate the impact of land use regulation on housing vacancy rates. Using a 30-year panel dataset on land use regulation for 350 English Local Authorities (LAs) and addressing potential reverse causation and other endogeneity concerns, we find that tighter local planning constraints increase local housing vacancy rates: a one standard deviation increase in restrictiveness causes the local vacancy rate to increase by 0.9 percentage points (23%). The same increase in local restrictiveness also causes a 6.1% rise in commuting distances. The results underline the interdependence of local housing and Labour markets and the unintended adverse impact of more restrictive planning policies.
We study how administrative boundaries and tax competition among asymmetric jurisdictions interact with the labor and land markets to determine the economic structure and performance of metropolitan areas. Contrary to general belief, cross-border commuting need not be welfare-decreasing in the presence of agglomeration economies that vary with the distribution of firms within the metropolitan area. Tax competition implies that the central business district is too small and prevents public policy enhancing global productivity to deliver their full impact. Although our results support the idea of decentralizing the provision of local public services by independent jurisdictions, they highlight the need of coordinating tax policies and the importance of the jurisdiction sizes within metropolitan areas. © 2015 Elsevier B.V.
We develop a model of pork-barrel politics in which a government official tries to improve her reelection chances by spending on targeted interest groups. The spending signals that she shares their concerns. We investigate the effect of such pandering on public spending. Pandering increases spending relative to a non-accountable official (one who does not have to run for reelection) if either the official's overall spending propensity is known, or if it is unknown but the effect of spending on the deficit is opaque to voters. By contrast, an unknown spending propensity may induce the elected official to exhibit fiscal discipline if spending is transparent.
Policy makers agree that vacant houses are undesirable. Moreover the existence of empty houses is used as an argument for allocating less land for new construction. So higher vacancy rates tend to trigger tighter restrictions on the supply of land. Such tighter restrictions lead to higher prices and, because of the incentives this creates for occupying housing, to lower housing vacancies (‘opportunity cost effect’). There is, however, a second effect ignored by planners: more restrictive planning policies impede the matching process in housing markets so leading to higher vacancies (‘mismatch effect’). Which of these two forces dominates is an empirical question. This is our focus here. Addressing potential reverse causation and other endogeneity concerns, we use a unique panel data set on land use regulation for 350 Local Authorities in England from 1981 to 2011. Our results show that tighter local planning constraints increase local housing vacancy rates, suggesting that the mismatch effect dominates. A one standard deviation increase in local regulatory restrictiveness causes the average local vacancy rate to increase by about 0.9 percentage points (23 percent). The results are economically meaningful and show that pointing to the existence of vacant houses as a reason for being more restrictive in allocating land for housing is counterproductive.
Despite the widespread recognition of the effectiveness of information reporting to increase tax compliance, existing tax theory considers tax audits to be the only tool to prevent evasion. This paper extends tax theory by modeling information reporting as an additional enforcement instrument that allows a tax authority to acquire signals about taxpayers' income. The paper rigorously characterizes the optimal strategy to maximize tax revenue when enforcement resources are limited. It determines the optimal allocation of resources between audits and information reporting, which is governed by how effectively the signals facilitate audit targeting. The model demonstrates that the value of information reporting declines with audit coverage because of the corresponding decline in the value of audit targeting. The optimal level of information reporting is an inverse U-shaped function of the budget allocated to enforcement, while the optimal audit coverage always increases with the budget. This finding implies that at some point it may not be optimal to expand information reporting.