Tax policy design in the presence of social preferences: some experimental evidence

This paper reports the results of experiments designed to examine whether a taste for fairness affects people’s preferred tax structure. Building on the Fehr and Schmidt (1999) model, we devise a simple test for the presence of social preferences in voting for alternative tax structures. The experimental results show that individuals demonstrate concern for their own payoff and inequality aversion in choosing among alternative tax structures. However, concern for redistribution decreases when it leads to increasing deadweight losses. Our findings have important implications for the design of optimal tax theory.

Demand Distribution Dynamics in Creative Industries: the Market for Books in Italy

We studied the distribution dynamics of the demand for books in Italy. We found that for each of the three broad sub-markets into which the book publishing industry can be classified - Italian novels, foreign novels and non-fiction - sales over a three-year sample can be adequately fitted by a power law distribution. Our results can be plausibly interpreted in terms of a model of interactions among buyers exchanging information on the books they buy.Book publishing industry; Information transmission; Power law distribution

Walk the line : conflict, state capacity and the political dynamics of reform

This paper develops a dynamic framework to analyze the political sustainability of economic reforms in developing countries. First, we demonstrate that economic reforms that are proceeding successfully may run into a political impasse, with the reform’s initial success having a negative impact on its political sustainability. Second, we demonstrate that greater state capacity to make compensatory transfers to those adversely affected by reform, need not always help the political sustainability of reform, but can also hinder it. Finally, we argue that in ethnically divided societies, economic reform may be completed not despite ethnic conflict, but because of it

Performance Indicators for Natural Resource and Environmental Policy: Contributions from American Institutional Law and Economics

Article published in the Duke Environmental Law & Policy Forum

Risk and Inequality Perceptions

We examine the relationship between risk analysis and inequality analysis, using a questionnaire-experimental approach .The experiments focus on the effect of income transformations on the perceived rankings of income distributions in either a risk or inequality context. Both context and income levels are important in influencing rankings.Risk, Inequality, Income transformations.

How Changing Prudence and Risk Aversion Affect Optimal Saving

We show how optimal saving in a two-period model is affected when prudence and riskaversion of the underlying utility function change. Increasing prudence alone will induce higher savings only if, for certain combinations of the interest rate and the pure time discount rate, there is distributional neutrality between the two periods. Otherwise, changes of risk aversion that affect the distribution between the periods must also be taken into account.prudence, risk aversion, saving, intergenerational distribution

Instrument Choice in Environmental Policy

We examine the extent to which various environmental policy instruments meet major evaluation criteria, including cost-effectiveness, distributional equity, minimization of risk in the presence of uncertainty, and political feasibility. Instruments considered include emissions taxes, tradable emissions allowances, subsidies for emissions reductions, performance standards, technology mandates, and research and development subsidies. Several themes emerge. First, no single instrument is clearly superior along all the criteria. Second, significant trade-offs arise in the choice of instrument; for example, assuring a reasonable degree of distributional equity often will require a sacrifice of cost-effectiveness. Third, it is possible and sometimes desirable to design hybrid instruments that combine features of various instruments in their “pure” form. Fourth, for many pollution problems, more than one market failure may be involved, which may justify (on efficiency grounds, at least) employing more than one instrument. Finally, potential overlaps and undesirable interactions among environmental policy instruments are sometimes a matter of concern.emissions control instruments, cost-effectiveness, distributional burden, induced innovation

Peer effects in risk taking: Envy or conformity?

We examine two explanations for peer effects in risk taking: relative payoff concerns and preferences that depend on peer choices. We vary experimentally whether individuals can condition a simple lottery choice on the lottery choice or the lottery allocation of a peer. We find that peer effects increase significantly, almost double, when peers make choices, relative to when they are allocated a lottery. In both situations, imitation is the most frequent form of peer effect. Hence, peer effects in our environment are explained by a combination of relative payoff concerns and preferences that depend on peer choices. Comparative statics analyses and structural estimation results suggest that a norm to conform to the peer may explain why peer choices matter. Our results suggest that peer choices are important in generating peer effects and hence have important implications for modeling as well as for policy