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

Capital Tax Competition and Returns to Scale

There is a gap between the predictions of capital tax competition models and the reality they purport to describe. In a standard capital-tax model, with head taxes, capital-importing regions tax capital and capital-exporting regions subsidize capital. In the real-world, competing regions appear to subsidize capital whether or not they are capital importers. We show that by relaxing the standard assumption of constant returns to scale symmetric regions in a Nash equilibrium may all subsidize capital.We also prove that any ine¢ciencies in a non-symmetric Nash equilibria arise entirely from regions’ incentives to manipulate the terms of trade, and not from increasing returns.We also compare our results to those in captial tax competition models without head taxes.

A Minimum Wage can be Welfare-Improving and Employment-Enhancing

We examine whether minimum wages can fulfill a useful role as part of an optimal nonlinear income tax scheme. In this setting, governments cannot observe household abilities, only their incomes. Redistributing according to income, the government is constrained by a set of incentive constraints. Firms, on the other hand, are able to identify abilities of workers. To exploit that, the government imposes a minimum wage. This will preclude firms from offering a job to anyone below the minimum wage. The use of the minimum wage policy combined with the institutional features of typical welfare systems allows the incentive constraints to be severed at the ability level associated with the minimum wage. If such a scheme can be enforced, the government can increase the amount of redistribution from those working to those not working. Moreover, the optimal minimum wage may actually lower the number of unemployed.Minimum Wage, Optimal Income Tax, Unemployment

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

Agglomeration Effects and the Competition for Firms

A two-region economy consists of a given but different number of immobile workers in each region, and a given number of mobile firms. Firms create jobs where they locate, but there is frictional unemployment. Two sorts of agglomeration effects arise: those from economies of scale in matching, and those from production economies external to the firm. Regions may either be part of a unitary state in which case all regional policies are decided by the central government, or they may abe part of a federal state in which case some policies are determined by the regional governments. We characterize the resource allocations in both a unitary and a federal state, and identify the set of instruments that are required to replicate the social optimum in each state.Agglomeration, Inter-Jurisdictional Competititon, Unemployment

OPTIMAL INCOME TAXATION WITH QUASI-LINEAR PREFERENCES REVISITED

With quasi-linear in leisure preferences, closed-form solutions for the marginal tax rates and the marginal utility of consumption under utilitarian and maxi-min objectives depend only on the skill distribution. Bunching induced by binding second-order incentive conditions also depends only on the distribution, but does not affect solutions in the non-bunched range. These are affected if bunching is caused by binding non-negative income constraints. Specific skill distributions are considered and it shown that the pattern of marginal tax rates depend critically on whether or not the skill distribution is truncated at the upper end.Optimal Income Tax, Quasi-Linear Preferences

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

Optimal Policies and the Informal Sector

This paper characterizes optimal policies in the presence of tax evasion and undocumented workers. Equilibrium can be characterized as segmented or non-segmented, depending on whether domestic workers work exclusively in the formal sector (segmented) or also in the informal sector (non-segmented). Surprisingly, in equilibrium, wages are always equalized between domestic and undocumented workers, even if they do not work in the same sectors of the economy. This is driven by the interaction of firm level decisions with optimal government policy. We also find that enforcement may not always be decreasing in its cost, and that governments will optimally enforce segmentation if enforcement costs are not too high.Informal Labour Market; Enforcement; Undocumented Workers; Public Good Provision

Monitoring Job Search as an Instrument for Targeting Transfers

Redistribution programs are constrained because those not working may be either unable to work, voluntarily unemployed or involuntarily unemployed. The inability to distinguish among these three cases inhibits the targeting of transfers to those most in need. Enabling the government to monitor whether unemployed individuals are searching for work and accepting any offered jobs increases its ability to redistribute income. We show that these monitoring activities are complementary, and consider how a minimum wage might be a useful adjunct to monitoring contingent tax-transfer policies.Redistribution, Monitoring, Unemployment, Targeting

Preferences over the Fair Division of Goods: Information, Good, and Sample Effects in a Health Context

Greater recognition by economists of the influential role that concern for distributional equity exerts on decision making in a variety of economic contexts has spurred interest in empirical research on the public judgments of fair distribution. Using a stated-preference experimental design, this paper contributes to the growing literature on fair division by investigating the empirical support for each of five distributional principles — equal division among recipients, Rawlsian maximin, total benefit maximization, equal benefit for recipients, and allocation according to relative need among recipients — in the division of a fixed bundle of a good across settings that differ with respect to the good being allocated (a health care good — pills, and non-health care but still health-affecting good — apples) and the way that alternative possible divisions of the good are described (quantitative information only, verbal information only, and both). It also offers new evidence on sample effects (university sample vs. community samples) and how the aggregate ranking of principles is affected by alternative vote-scoring methods. We find important information effects. When presented with quantitative information only, support for the division to equalize benefit across recipients is consistent with that found in previous research; changing to verbal descriptions causes a notable shift in support among principles, especially between equal division of the goods and total benefit maximization. The judgments made when presented with both quantitative and verbal information match more closely those made with quantitative-only descriptions rather than verbal-only descriptions, suggesting that the quantitative information dominates. The information effects we observe are consistent with a lack of understanding among participants as to the relationship between the principles and the associated quantitative allocations. We also find modest good effects in the expected direction: the fair division of pills is tied more closely to benefit-related criterion than is the fair division of apples (even though both produce health benefits). We find evidence of only small differences between the university and community samples and important sex-information interactions.Distributive Justice; Equity; Resource Allocation; Health Care