Monitoring and Pay: An Experiment on Employee Performance under Endogenous Supervision

We present an experimental test of a shirking model where monitoring intensity is endogenous and effort a continuous variable. Wage level, monitoring intensity and consequently the desired enforceable effort level are jointly determined by the maximization problem of the firm. As a result, monitoring and pay should be complements. In our experiment, between and within treatment variation is qualitatively in line with the normative predictions of the model under standard assumptions. Yet, we also find evidence for reciprocal behavior. Our data analysis shows, however, that it does not pay for the employer to solely rely on the reciprocity of employees

Does the sole description of a tax authority affect tax evasion? The impact of described coercive and legitimate power.

Following the classic economic model of tax evasion, taxpayers base their tax decisions on economic determinants, like fine rate and audit probability. Empirical findings on the relationship between economic key determinants and tax evasion are inconsistent and suggest that taxpayers may rather rely on their beliefs about tax authority’s power. Descriptions of the tax authority’s power may affect taxpayers’ beliefs and as such tax evasion. Experiment 1 investigates the impact of fines and beliefs regarding tax authority’s power on tax evasion. Experiments 2-4 are conducted to examine the effect of varying descriptions about a tax authority’s power on participants’ beliefs and respective tax evasion. It is investigated whether tax evasion is influenced by the description of an authority wielding coercive power (Experiment 2), legitimate power (Experiment 3), and coercive and legitimate power combined (Experiment 4). Further, it is examined whether a contrast of the description of power (low to high power; high to low power) impacts tax evasion (Experiments 2-4). Results show that the amount of fine does not impact tax payments, whereas participants’ beliefs regarding tax authority’s power significantly shape compliance decisions. Descriptions of high coercive power as well as high legitimate power affect beliefs about tax authority’s power and positively impact tax honesty. This effect still holds if both qualities of power are applied simultaneously. The contrast of descriptions has little impact on tax evasion. The current study indicates that descriptions of the tax authority, e.g., in information brochures and media reports, have more influence on beliefs and tax payments than information on fine rates. Methodically, these considerations become particularly important when descriptions or vignettes are used besides objective information

The Effects of Rewards on Tax Compliance Decisions

We analyze how the redistribution of tax revenues influences tax compliance behavior by applying different reward mechanisms. In our experiment, subjects have to make two decisions. In the first stage, subjects decide on the contribution to a public good. In the second stage, subjects declare their income from the first stage for taxation. Our main results are threefold: First, from an aggregated perspective, rewards have a negative overall effect on tax compliance. Second, we observe that rewards affect the decision of taxpayers asymmetrically. In particular, rewards have either no effect (for those who are rewarded) or a negative effect (for those who are not rewarded) on tax compliance. Thus, if a high compliance rate of taxpayers is preferred, rewards should not be used by the tax authority. Third, we find an inverse u-shaped relationship between public good contribution and tax compliance. In particular, up to a certain level, tax compliance increases with subjects' own contributions to the public good. Above this level, however, tax compliance decreases with the public good contribution

Tax Enforcement in an Agent-Based Model with Endogenous Audits

We generalize the classic Allingham and Sandmo’s model of tax evasion considering heterogeneous agents with different degrees of tax morale and matchable, as opposed to non-matchable, income. The Tax Agency evolves its control scheme, maximizing the revenues from fines, and takes into account some minimal information on the taxpayers. We compare different audit policies and find that the most effective scheme remarkably depends on the way agents update the subjective probability of being audited, on the distribution of matchable income in the population as well as on the level of tax morale. Hence, different features of societies and taxpayers’ behaviors not only affect the compliance rate, as expected, but require the Tax Agency to alter its audit policy in a context-dependent way. In particular, high revenues are obtained performing random audits when agents think they are directed towards peculiar individuals and, conversely, should be biased towards low declarations when taxpayers believe audits are nonspecific or random

On the Challenges and Opportunities in Generative AI

The field of deep generative modeling has grown rapidly and consistently over the years. With the availability of massive amounts of training data coupled with advances in scalable unsupervised learning paradigms, recent large-scale generative models show tremendous promise in synthesizing high-resolution images and text, as well as structured data such as videos and molecules. However, we argue that current large-scale generative AI models do not sufficiently address several fundamental issues that hinder their widespread adoption across domains. In this work, we aim to identify key unresolved challenges in modern generative AI paradigms that should be tackled to further enhance their capabilities, versatility, and reliability. By identifying these challenges, we aim to provide researchers with valuable insights for exploring fruitful research directions, thereby fostering the development of more robust and accessible generative AI solutions

Competition and moral behavior: A meta-analysis of forty-five crowd-sourced experimental designs

Does competition affect moral behavior? This fundamental question has been debated among leading scholars for centuries, and more recently, it has been tested in experimental studies yielding a body of rather inconclusive empirical evidence. A potential source of ambivalent empirical results on the same hypothesis is design heterogeneity—variation in true effect sizes across various reasonable experimental research protocols. To provide further evidence on whether competition affects moral behavior and to examine whether the generalizability of a single experimental study is jeopardized by design heterogeneity, we invited independent research teams to contribute experimental designs to a crowd-sourced project. In a large-scale online data collection, 18,123 experimental participants were randomly allocated to 45 randomly selected experimental designs out of 95 submitted designs. We find a small adverse effect of competition on moral behavior in a meta-analysis of the pooled data. The crowd-sourced design of our study allows for a clean identification and estimation of the variation in effect sizes above and beyond what could be expected due to sampling variance. We find substantial design heterogeneity—estimated to be about 1.6 times as large as the average standard error of effect size estimates of the 45 research designs—indicating that the informativeness and generalizability of results based on a single experimental design are limited. Drawing strong conclusions about the underlying hypotheses in the presence of substantive design heterogeneity requires moving toward much larger data collections on various experimental designs testing the same hypothesis

Eliciting taxpayer preferences increases tax compliance

Two experiments show that eliciting taxpayer preferences on government spending—providing taxpayer agency--increases tax compliance. We first create an income and taxation environment in a laboratory setting to test for compliance with a lab tax. Allowing a treatment group to express nonbinding preferences over tax spending priorities, leads to a 16% increase in tax compliance. A followup online study tests this treatment with a simulation of paying US federal taxes. Allowing taxpayers to signal their preferences on the distribution of government spending, results in a 15% reduction in the stated take-up rate of a questionable tax loophole. Providing taxpayer agency recouples tax payments with the public services obtained in return, reduces general anti-tax sentiment, and holds satisfaction with tax payment stable despite increased compliance with tax dues. With tax noncompliance costing the US government $385billion annually, providing taxpayer agency could have meaningful economic impact. At the same time, giving taxpayers a voice may act as a two-way "nudge," transforming tax payment from a passive experience to a channel of communication between taxpayers and government