A supply-side explanation of European unemployment

This article offers a supply-side explanation of striking patterns in unemployment rates and duration of unemployment in European countries, compared with other member countries of the OECD (Organization for Economic Cooperation and Development). The rise in long-term unemployment in Europe is attributed to the adverse incentive effects of generous welfare programs in times of economic turbulence.Unemployment - Europe

Tax evasion, corruption, and the remuneration of heterogeneous inspectors

The author develops a general model for addressing the question of how to compensate tax inspectors in an economy where corruption is pervasive - a model that considers the existence of strategic transmission of information. Most of the literature on corruption assumes that the taxpayer and the tax inspector jointly decide on the income to report, which also determines the size of the bribe. In contrast, this model considers the more realistic case in which the taxpayer unilaterally chooses the income to report. The tax inspector cannot change the report and is faced with a binary choice: either he negotiates the bribe on the basis of the income report or he denounces the tax evader and therefore renounces the bribe. In his model, the optimal compensation scheme must take into account the strategic interaction between taxpayers and tax inspectors: a) Pure"tax farming"(paying tax inspectors a share of their tax collections) is optimal only when all tax inspectors are corruptible. b) When there are both honest and corruptible inspectors, the optimal compensation scheme lies between pure tax farming and a pure wage scheme. c) Paradoxically, when inspectors are hired beforehand, it may be optimal to offer contracts that attract corruptible inspectors but not honest ones.Banks&Banking Reform,Environmental Economics&Policies,Poverty Impact Evaluation,Economic Theory&Research,Business Environment,Environmental Economics&Policies,Business Environment,Economic Theory&Research,Poverty Impact Evaluation,Banks&Banking Reform

Mixture Selection, Mechanism Design, and Signaling

We pose and study a fundamental algorithmic problem which we term mixture selection, arising as a building block in a number of game-theoretic applications: Given a function $g$ from the $n$-dimensional hypercube to the bounded interval $[-1,1]$, and an $n \times m$ matrix $A$ with bounded entries, maximize $g(Ax)$ over $x$ in the $m$-dimensional simplex. This problem arises naturally when one seeks to design a lottery over items for sale in an auction, or craft the posterior beliefs for agents in a Bayesian game through the provision of information (a.k.a. signaling). We present an approximation algorithm for this problem when $g$ simultaneously satisfies two smoothness properties: Lipschitz continuity with respect to the $L^\infty$ norm, and noise stability. The latter notion, which we define and cater to our setting, controls the degree to which low-probability errors in the inputs of $g$ can impact its output. When $g$ is both $O(1)$-Lipschitz continuous and $O(1)$-stable, we obtain an (additive) PTAS for mixture selection. We also show that neither assumption suffices by itself for an additive PTAS, and both assumptions together do not suffice for an additive FPTAS. We apply our algorithm to different game-theoretic applications from mechanism design and optimal signaling. We make progress on a number of open problems suggested in prior work by easily reducing them to mixture selection: we resolve an important special case of the small-menu lottery design problem posed by Dughmi, Han, and Nisan; we resolve the problem of revenue-maximizing signaling in Bayesian second-price auctions posed by Emek et al. and Miltersen and Sheffet; we design a quasipolynomial-time approximation scheme for the optimal signaling problem in normal form games suggested by Dughmi; and we design an approximation algorithm for the optimal signaling problem in the voting model of Alonso and C\^{a}mara

Bargaining in global communication networks

Abstract We study a Rubinstein-Stahl two-player non-cooperative bargaining game played by n players connected in a communication network. We allow the players to communicate with any peer in the same component via the existing paths connecting the peers in a given communication network (global interaction). The unique stationary subgame perfect equilibrium profile characterizes the players’ expected payoff as function of their betweenness centrality score. Secondly, we study a dynamic link-formation game which allows the players to activate new linkages or sever existing ones in order to increase their bargaining power for a given marginal cost per link. We identify the conditions under which the pairwise stable network structures which arise belong to the family of the nested split graphs. These are graphs where the neighbourhood of each node is contained in the neighbourhoods of nodes with higher degrees

Who bears the risk? Analyzing the strategic interaction between regulators and investors when setting incentives for renewable electricity

Master in Economics: Empirical Applications and Policies. Academic Year: 2019-2020Energy policies for promoting investment in renewable energy sources have become crucial for deploying different green energy technologies. Depending on their design, the conventional incentive systems assign the risk to either the policymaker or the investor, affecting the strategic interaction between them when setting a price for the subsidy. Moreover, Feed-in Tariffs, which were the principal subsidy scheme used in Spain, were removed in 2013, mainly because their design led to an unbearable deficit. Farrell et al. (2017), combining option pricing theory and game theory, propose an incentive system for Irish Feed-in Tariffs in which both parties would share the risk. Building on this approach, we develop a methodology to evaluate different optimal incentive schemes for Spain and present an application for 2013 and 2019. We perform an extensive numerical analysis to determine how the different proposals would work for Spain