The employment relationship is to a large extent characterized by incomplete contracts, in which workers have a considerable degree of discretion over the choice of their work effort. This discretion at work kicks in the potential importance of “gift exchange” or reciprocity between workers...

This paper models the firm as a community à la Akerlof (1980) to account for asymmetric behavior, and in particular, downward rigidity of wages. It is shown that, through social interaction among workers in the firm community, wage cuts can give rise to a large, discontinuous fall in labor...

Assuming a neoclassical production technology, this paper characterizes constrained efficient intertemporal wedges for the macro aggregate as well as the micro individual allocation of dynamic Mirrleesian economies. We first construct “Pareto-Negishi weights” from the multipliers on a...

What is the prescription of Ramsey capital taxation in the long run? Aiyagari (1995) addressed the question in a heterogeneous-agent incomplete-markets (HAIM) economy, showing that a positive capital tax should be imposed to implement the so-called modified golden rule (MGR). This paper revisits...

This paper extends Graetz, Reinganum and Wildes (1986) seminal work on tax compliance to the real-world scenario where the IRS (Internal Revenue Service) faces a budget constraint imposed upon her by the Congress. The paper consists of two parts. The first part is positive we characterize the...

This paper considers a political contest model wherein self-interested politicians seek rents from the public budget, while general voters make political efforts to protest against politicians' rent seeking directly (for example, through voting in referendums such as the passage of Proposition...

This paper considers a tax competition model in which regional government activities include income redistribution as well as public good provision. To incorporate the regional government function of income redistribution, we extend the tax system from the stylized proportional capital income...

The model in which an individual maximizes his total ordinal or cardinal utility subject to his budget constraint is a paradigm of individual choice theory in economics. The advantage of ordinal utility theory is that utility is immeasurable, but it is inconsistent with common sense, for...