Damage Averaging and the Formation of Class Action Suits

Within a class action suit, similarly injured individuals can collectively obtain compensation through the justice system. Damage averaging occurs when the compensation awarded by the court to individual members is partly or completely determined by the average damage of the class. The key role of damage averaging in influencing the identity of the individual that will initiate the class action suit is illustrated in a waiting game. If there is complete averaging, the individual with the lowest damage will initiate the class action suit, while if there is less damage averaging, other individuals may do so. Grâce au recours collectif, des individus ayant subi des dommages d'ampleur différente mais de même nature peuvent obtenir compensation en cour. Il est possible que le montant accordé à un individu par la cour ne soit pas strictement une compensation pour les dommages qu'il a subis, mais qu'il réflète aussi, en partie, la moyenne des dommages subis par tous les participants au recours collectif. Envisageant la formation d'un recours collectif comme un jeu d'attente, nous montrons que l'usage de la moyenne des dommages par la cour est un déterminant important de l'identité de celui qui initiera le recours collectif. Si seule la moyenne des dommages est utilisée par la cour dans l'établissement des compensations, alors l'individu ayant subi les plus petits dommages initiera le recours collectif. Si la cour utilise également les dommages individuels dans l'établissement des compensations, alors d'autres individus pourraient vouloir l'initier.Class action suit, damage averaging

On the Early Holocene: Foraging to Early Agriculture

We consider a world in which the mode of food production, foraging or agriculture, is endogenous, and in which technology grows exogenously. Within a model of coalition formation, we allow individuals to rationally form cooperative communities (bands) of foragers or farmers. At the lowest levels of technology, equilibrium entails the grand coalition of foragers, a cooperative structure which avoids over-exploitation of the environment. But at a critical state of technology, the cooperative structure breaks down through an individually rational splintering of the band. At this stage, there can be an increase in work and through the over-exploitation of the environment, a food crisis. In the end, technological growth may lead to a one-way transition from foraging to agriculture.Foraging, Agriculture, Transition, Coalition Formation, Cooperation

Why Is Law Enforcement Decentralized?

Law enforcement is decentralized. It is so despite documented interjurisdictional externalities which would justify its centralization. To explain this fact, we construct a political economy model of law enforcement. Under decentralization, law enforcement in each region is in accord with the preferences of regional citizens, but interjurisdictional externalities are neglected. Under centralization, law enforcement for all regions is chosen by a legislature of regional representatives which may take externalities into account. However, the majority rule applies for decisions made by the central legislature and this implies that the allocation of enforcement resources may be skewed in favour of those who belong to the required majority. We show that the choice between centralization and decentralization depends on the technology of law enforcement and the nature of the interjurisdictional externalities.Crime, Law enforcement, Decentralization, Externalities

Business Tax Lobbying

This paper investigates the effects of business tax lobbying in the presence of investments that are sunk or costly to adjust in the short run. We show that industries which rely more heavily on sunk capital are generally more successful in obtaining tax breaks through lobbying; this reverses the usual logic of the capital levy problem. Nevertheless, these industries invest less in long-run equilibrium than more flexible ones. We then consider the effects of relaxing legal restrictions on corporate lobbying. When politicians give more weight to lobbyists' preferences, taxes fall on average and investment rises. But investment is misallocated among industries, so that welfare may fall. Thus restrictions on business lobbyists may be desirable. Dans ce texte, nous étudions le lobbying des sociétés visant à réduire leurs impôts lorsque le capital qu'elles utilisent est irrécupérable ou coûteux à ajuster à court terme. Il est démontré que grâce au lobbying, les industries utilisant un capital relativement coûteux à ajuster obtiennent les baisses d'impôt les plus substantielles. Néanmoins, ces industries investissent moins à long terme que celles utilisant un capital plus flexible. Nous étudions également l'effet d'une libéralisation des règles encadrant le lobbying des sociétés. Lorsque les politiciens attachent plus d'importance aux préférences des lobbies, le niveau moyen de taxation diminue et l'investissement augmente. Le bien-être peut cependant diminuer à cause de la mauvaise répartition de l'investissement entre les industries. Un certain encadrement du lobbying des sociétés peut donc être désirable.Lobbying, Business taxation, Investment

Competition in Law Enforcement and Capital Allocation

This paper studies interjurisdictional competition in the fight against crime and its impact on occupational choice and the allocation of capital. In a world where capital is mobile, jurisdictions are inhabited by individuals who choose to become workers or criminals. Because the return of the two occupations depends on capital, and because investment in capital in a jurisdiction depends on its crime rate, there is a bi-directional relationship between capital investment and crime which may lead to capital concentration. By investing in costly law enforcement, a jurisdiction makes the choice to become criminal less attractive, which reduces the number of criminals and makes its territory more secure. This increased security increases the attractiveness of the jurisdiction for investors and this can eventually translate into more capital being invested. We characterize the Nash equilibria — some entailing a symmetric outcome, others an asymmetric one — and study their efficiency.Crime; Occupational Choice; Capital Location; Law Enforcement

Tenancy Default, Excess Demand and the Rental Market

We develop a model of a competitive rental housing market with an endogenous rate of tenancy default arising from income uncertainty. Potential tenants must choose to engage in a costly search for rental housing, and must commit to a rental agreement before the uncertainty is resolved. We show that there are two possible equilibria in this market: a market-clearing equilibrium and an equilibrium with excess demand. Therefore, individuals might not have access to rental housing because they are unable to afford to look for housing, they are unable to pay their rent, or with excess demand in the market they are simply unable to find a rental unit. We show that government regulations affecting the cost of default to the housing suppliers and the quality of rental units can have different effects on the equilibrium variables of interest — rental rate, quantity demanded and supplied, and access to rental housing — depending on the type of equilibria in the market. A numerical example illustrates these results.Tenancy Default, Excess Demand, Rental Housing Policies

Equilibrium Excess Demand in the Rental Housing Market (revised)

We develop a model of a competitive rental housing market with endogenous default due to income uncertainty. There is a large number of identical, potential suppliers who each face a fixed cost of entering the rental housing market. Those suppliers who choose to enter decide how many rental units to supply and the rental price to charge. Potential tenants who differ in their income and face an uninsurable income shock choose whether to engage in a costly search for rental housing. If they find a rental unit, then they must commit to a rental agreement before the income uncertainty is resolved. Consequently, some tenants may default on their rental payments. We show that tenancy default can explain persistent excess demand in the rental housing market without any government price regulations. With excess demand in equilibrium, some individuals are simply unable to find rental housing. We study both government regulations affecting the cost of default to the housing suppliers and the quality of rental units, and the imposition of rent control. We show that rent control can have non-standard effects on the access to rental housing and on welfare.Tenancy Default, Excess Demand, Rental Housing Policies

Corporate Lobbying and Commitment Failure in Capital Taxation

This paper investigates the effects of lobbying by corporations when investments are irreversible and government cannot commit to tax policies. We show that industries which rely more heavily on sunk capital lobby more vigorously and are generally more successful in obtaining tax breaks. Thus lobbying can mitigate the capital levy problem. Nevertheless, these industries invest less in long-run equilibrium than more flexible ones. We then consider the effects of relaxing legal restrictions on corporate lobbying. When the deadweight costs of lobbying fall, taxes on sunk capital tend to fall, but political contributions may rise, as lobbyists compete more intensively for political favors. On balance, a ban of lobbying may therefore cause investment to rise or fall.

Competition in Law Enforcement and Capital Allocation

This paper studies interjurisdictional competition in the fight against crime and its impact on occupational choice and the allocation of capital. In a world where capital is mobile, jurisdictions are inhabited by individuals who choose to become workers or criminals. Because the return of the two occupations depends on capital, and because investment in capital in a jurisdiction depends on its crime rate, there is a bi-directional relationship between capital investment and crime which may lead to capital concentration. By investing in costly law enforcement, a jurisdiction makes the choice to become criminal less attractive, which reduces the number of criminals and makes its territory more secure. This increased security increases the attractiveness of the jurisdiction for investors and this can eventually translate into more capital being invested. We characterize the Nash equilibria - some entailing a symmetric outcome, others an asymmetric one - and study their efficiency.Crime, Occupational Choice, Capital Location, Law Enforcement

La concurrence entre gouvernements est-elle bénéfique?

Dans cet article, nous tentons de répondre à deux questions : (1) La concurrence entre gouvernements est-elle bénéfique? (2) Si la réponse à cette question est non, peut-on corriger les problèmes qui découlent de cette concurrence?In this paper, we attempt to answer two questions: (1) Is competition between governments advantageous? (2) If the answer to this question is no, what can be done to solve some of the problems generated by this competition