Essays in Behavioral Public Economics.

A large body of evidence from behavioral economics suggests that individuals often behave in ways that contradict rigid rational choice models. This dissertation considers the implications for revealed preference analysis and optimal policymaking. The first chapter concerns the recovery of preferences from choice despite the presence of framing effects. The second chapter applies similar techniques to the analysis of survey data characterized by framing effects. The third chapter considers the implications of mis-perception of tax incentives for optimal tax policy.PhDEconomicsUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/133261/1/dreck_1.pd

Rationalizations and mistakes: optimal policy with normative ambiguity

Behavior that appears to violate neoclassical assumptions can often be rationalized by incorporating an optimization cost into decision-makers' utility functions. Depending on the setting, these costs may reflect either an actual welfare loss for the decision-maker who incurs them or a convenient (but welfare irrelevant) modeling device. We consider how the resolution of this normative ambiguity shapes optimal policy in a number of contexts, including default options, inertia in health plan selection, take-up of social programs, programs that encourage moving to a new neighborhood, and tax salience

Optimal defaults with normative ambiguity

Default effects are pervasive, but the reason they arise is often unclear. We study optimal policy when the planner does not know whether an observed default effect reflects a welfare-relevant preference or a mistake. Within a broad class of models, we find that determining optimal policy is impossible without resolving this ambiguity. Depending on the resolution, optimal policy tends in opposite directions: either minimizing the number of non-default choices or inducing active choice. We show how these considerations depend on whether active choosers make mistakes when selecting among non-default options. We illustrate our results using data on pension contribution defaults

Revealed-preference analysis with framing effects

In many settings, decision makers’ behavior is observed to vary on the basis of seemingly arbitrary factors. Such framing effects cast doubt on the welfare conclusions drawn from revealed-preference analysis. We relax the assumptions underlying that approach to accommodate settings in which framing effects are present. Plausible restrictions of varying strength permit either partial or point identification of preferences for the decision makers who choose consistently across frames. Recovering population preferences requires understanding the empirical relationship between decision makers’ preferences and their sensitivity to the frame. We develop tools for studying this relationship and illustrate them with data on automatic enrollment into pension plans

Taxpayer Search for Information: Implications for Rational Attention

We examine novel data on searches for capital-gains-tax-related information to determine when and how taxpayers acquire information. We find strong seasonal increases in information search around tax filing deadlines, suggesting that taxpayers seek information to comply with tax law. Positive correlations between stock market activity and information search and year-end spikes in information search on capital losses suggest that taxpayers seek information for tax planning purposes. Policy changes and news events cause noteworthy information search. Overall, these data suggest that taxpayers are not always fully informed, but that rational attention and exogenous shocks to tax salience drive taxpayer information search.http://deepblue.lib.umich.edu/bitstream/2027.42/99756/1/1198_Slemrod.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/99756/4/1198_Slemrod_sept13.pd

Subsidized ridesourcing for the first/last mile: how valuable for whom?

The first/last mile is a long known deterrent to public transportation use, yet difficult to solve with fixed route transit. Many transit agencies are exploring partnerships with ridesourcing companies to offer subsidized feeder services. Ridership, however, has been surprisingly low. We explore two conceptual explanations. First, ridesourcing fares are found to exceed travel time savings for all distances below 1 mile and annual household incomes below USD 30,000 (i.e., the majority of US bus-using households). Subsidies are thus necessary, yet common schemes (flat fees, flat value or percentage discounts) are inequitable as they particularly benefit high-income households (thus miss their main target group). Second, the disutility of the additional transfer (‘transfer penalty’) and wait times exceed travel time savings assuming modest values for all distances below 0.45 miles. Subsidized ridesourcing for the first/last mile is thus not the panacea often portrayed, particularly not for short first/last miles. Where first/last miles are longer, investments in first/last mile services only might miss their purpose as the private car often remains the faster, more convenient and cheaper option. A much more holistic set of policy changes is hence required. Where transit agencies decide to proceed with first/last mile subsidies, they are advised to integrate them into existing fares (offering first/last mile rides for free) as this is the most equitable approach

Public disclosure of tax information: Compliance tool or social network?

We conduct the first-ever study of actual searches done in a public tax disclosure system, analyzing about one million searches done in 2014 and 2015 in Norway. We characterize the social network these searches comprise, including its degree of homophily and reciprocation, and the demographics of targets and searchers. About one-fourth of searches occur within identifiable household and employment networks. Most searchers target people similar to themselves—homophily in network parlance—but young, low-income searchers also target older, successful people and celebrities. A causal research design based on the timing of searches relative to tax filing uncovers no evidence that, upon discovering they were targeted, targets subsequently increase their reported income. The evidence suggests that social comparisons motivate the bulk of searches rather than tax compliance. However, public disclosure may deter evasion even when compliance-motivated searches are rare in equilibrium.We are thankful to Oslo Fiscal Studies for financial support

Taxpayer search for information: implications for rational attention

We examine data on capital-gains-tax-related information search to determine when and how taxpayers acquire information. We find seasonal increases in information search around tax deadlines, suggesting that taxpayers seek information to comply with tax law. Positive correlations between stock market activity and search as well as year-end spikes in information search on capital losses when the market performs poorly suggest that taxpayers seek information for tax planning purposes. Policy changes and news events cause information search. These data suggest that taxpayers are not always fully informed, but that rational attention and exogenous shocks to tax salience drive taxpayer information search