Humanitarian innovation: The next step for greater impact

Since 2010, the aid sector has invested significant funds in innovation practice, implementing pilots and other practices borrowed from Silicon Valley. While this has supported some impact, the aid sector has now hit a plateau with innovation, struggling to scale what works, frustrated by ‘digital litter’ (unsustainable technology projects), trying to overcome the small innovation trap, and ‘pilotitis’ (fatigue from implementing small-scale projects that never scale up). Many innovation leaders in the social and development sectors are realising that the ‘lean’ innovation approaches commonly used do not work well for the complex challenges in their sector. To create the change and impact that our work demands, organisations must be able to work with real and messy challenges, and create large-scale innovative solutions. The sector is beginning to use system innovation to move past simplifying challenges in lean experiments and hackathons. This paper discusses how system innovation can support humanitarians to take the next step to innovation effectiveness, to create real impact in communities

Credibility and Law Enforcement

The precommitment approach to law enforcement is inappropriate as a positive theory of crime and punishment because it is inconsistent with the institutional structure of U.S. law enforcement. We develop a formal model which integrates theories of optimal sanctions, individual criminal behavior and the allocation of effort to apprehension, and imposes credibility constraints on the choice of sanction—i.e., given the severity of a crime and the individual characteristics of the criminal, the sanction imposed must be optimal from society's perspective, after the crime has been committed

Equilibrium Enforcement and Compliance in the Presence of Tax Practitioners

We develop a game-theoretic model in which taxpayers, tax practitioners and a tax agency all interact to determine the extent of tax compliance. The model focuses exclusively on the service aspects of third-party assistance. We characterize four types of equilibria, depending on whether taxpayers prefer to use tax practitioners and whether the tax agency prefers them to use tax practitioners. In the empirically relevant case, which occurs when tax practitioner penalties for noncompliance are sufficiently low and the efficiency gains from using practitioners are sufficiently high, the tax agency prefers taxpayers to prepare their own returns, but taxpayers prefer to use a tax practitioner. In this case, the use of a tax practitioner is associated with lower compliance and higher audit rates

Income Tax Compliance in a Principal-Agent Framework

Previous analyses have modeled income tax evasion as a "portfolio problem," deriving the optimal consumption of the "risky asset" (unreported income) under the assumption of a fixed probability of detection, The purpose of this paper is to examine some of these issues in tax compliance starting from a different set of assumptions. In particular, we compare alternative audit policies to the standard random audit policy. We focus on an "audit cutoff" policy, in which an agent triggers an audit if his or her reported income is "too low," and is not audited if reported income is "sufficiently high." This paper establishes two major results. First, random audit rules are weakly dominated by audit cutoff rules. It can be shown, given lump-sum taxes and fines, that these audit cutoff rules are the least-cost policies which induce truthful reporting of income. Second, the dominance of audit cutoff rules over random audit rules holds for "lump-sum" as well as proportional taxation—in fact, the equilibrium consequences of the two are equivalent

Settlement and Litigation Under Alternative Legal Systems

We consider a situation in which one party (the plaintiff) has a legally admissible claim for damages from another party (the defendant). The level of damage is known to the plaintiff; the defendant knows only its distribution, which is assumed to be continuous on some range. Before a trial takes place, the plaintiff makes a settlement demand. If the defendant rejects the demand, the court settles the dispute. We characterize the plaintiff's settlement demand policy and the defendant's probability of rejection policy for both separating and pooling equilibria. In the separating equilibrium, the defendant correctly infers the level of true damage from the settlement demand made by the plaintiff. In this case we show that, under risk neutrality, the equilibrium probability of a trial (as a function of true damages) is independent of the allocation of litigation costs. We also analyze the comparative statics of the equilibrium policies and compare them for specific litigation cost allocation systems

The Tax Compliance Game: Toward an Interactive Theory of Law Enforcement

The existing paradigm for the economic analysis of tax compliance provides an inadequate theory of the revenue collection process. Even as a purely economic model, its exclusive focus on individual taxpayers' decision-making promotes an unduly restrictive vision of the compliance problem and potential responses to it. In this paper we outline a more comprehensive theoretical basis for analyzing tax compliance, and illustrate it with a simple model. We believe our approach to be a significant improvement in the economic theory of law enforcement because it views the noncompliance problem as an interactive system. In our theoretical construct, individual decision-making not only depends upon and responds to the detection and punishment structure, but, unlike prior models, we also explicitly include the law enforcement agency--in this case the Internal Revenue Service--as an important interactive element. Initially we outline our general approach and its differences from the existing economic law enforcement paradigm. We then detail a simple model and its results and compare these results both to the prior literature and to some of our ongoing research in an effort to illustrate how our theoretical construct may affect predictions. Finally, we describe potential extensions of the model, examine its robustness with respect to various underlying assumptions and offer suggestions for further research, including possible applications to other law enforcement contexts

A Model of Tax Compliance Under Budget-Constrained Auditors

In the midst of various taxpayer "revolts" and federal budget deficits of unprecedented magnitude, noncompliance with federal and state income tax laws has become an issue of significant policy concern. If the IRS' budget is limited, the probability that any individual taxpayer will be audited depends on the behavior of other taxpayers. Thus the problem of compliance involves a "congestion" effect, which generates strategic interaction among taxpayers as well as between taxpayers and the IRS. This paper reflects an initial attempt to explore how the combination of a strategic IRS and asymmetric information affects the traditional theoretical results on tax compliance behavior

Expert Opinions and Taxpayer Compliance: A Strategic Analysis

In this paper we examine the incentives for taxpayers to claim risky deductions and to solicit expert opinions to support their positions, and for the tax agency to distinguish among individuals who do and do not solicit expert opinions for the purposes of auditing. We also consider the implications of an ex ante constraint on the tax agency which requires it to treat all taxpayers who take the deduction alike in terms of audit rates, whether or not they solicit an expert opinion. Finally, we examine the effects of regulations which limit the degree of riskiness for which a supporting opinion can be justified as well as the effects of changes in various penalty rates