There has been a growing interest in relationship between economic development and fiscal decentralization. Empirical studies, however, are not conclusive regarding their correlation or causality. The present paper aims to provide a theoretical foundation for better understanding of this issue....

Market failure in the financing of risky projects is studied. Project risk includes idiosyncratic and aggregate components. Banks can investigate aggregate risk and can evaluate the idiosyncratic risk of each entrepreneur. They engage in Bertrand competition for entrepreneurs using interest...

This paper studies the conflict of interest between politicians and better-informed bureaucrats when they have differing preferences over a public project. We start with a baseline model where a bureaucrat advises a single decision maker (politician) whether to adopt a project. The bureaucrat...

Welfare programs including disability benefits have been considered as an efficient way of delivering transfers to the needy. This paper addresses the importance of administrative cost of welfare systems by focusing on an agency problem arising between the government and social workers, whose...

An optimal commodity tax approach is taken to compare trade taxes and VATs when some commodities are produced informally. Trade taxes apply to all imports and exports, including intermediate goods, while the VAT applies only to sales by the formal sector and imports. The VAT achieves production...

Politicians typically do not know what policies are best for achieving their broad objectives, so rely on bureaucrats for advice. Bureaucrats are better informed, so can manipulate outcomes by proposing policies that suit their interests. We capture this conflict of interests using a model of...

Politicians typically do not know what policies are best for achieving their broad objectives, so rely on bureaucrats for advice. Bureaucrats are better informed, so can manipulate outcomes by proposing policies that suit their interests. We capture this conflict of interests using a model of...

Entrepreneurs starting new firms face two sorts of asymmetric information problems. Information about the quality of new investments may be private, leading to adverse selection in credit markets. And, entrepreneurs may not observe the quality of workers applying for jobs, resulting in adverse...

We study the effectson tax enforcement and tax policy of unintentional complianceerrors by taxpayers and administrative errors by tax auditors.The government can impose both penalties for misreporting andrewards for honest reporting. Maximal sanctions will not be appliedbecause errors are...

An optimal commodity tax approach is taken to compare trade taxes and VATs when some commodities are produced informally. Trade taxes apply to all imports and exports, including intermediate goods while the VAT applies only to sales by the formal sector and imports. The VAT can achieve...