Gordon M. Myers

Optimality, free mobility, and the regional authority in a federation

Abstract This paper examines the efficiency properties of a federation characterized by strategically competing regions and freely mobile homogeneous individuals. Analyses of this economy have concluded that achieving a Pareto optimal will require intervention by a national authority. This paper makes one basic point: the Nash equilibrium of regional authority behavior is Pareto optimal. The implication is that there is no role for a national authority in either providing interregional transfers or correcting for decentralized provision of public goods. The Nash equilibrium involves Samuelson public goods provision, and regions purchasing preferred population distributions with optimal interregional transfers.

Attachment to Home and Efficient Purchases of Population in a Fiscal Externality Economy

Abstract This paper examines the efficiency properties of an economy characterized by strategically competing regions and individuals with varying degrees of attachment to home, in an otherwise standard fiscal externality setting. Regional authorities may make interregional transfers in purchasing preferred populations. However, there is a range of distributions of resources over which neither region makes transfers. Nevertheless, all equilibrium allocations resulting from the Nash behavior of regional authorities, including those that involve no transfers, are efficient. Therefore, in contrast to the standard conclusions of the fiscal externality literature, there is no efficiency role for a central authority.

On the consequences of government objectives for economies with mobile populations

Abstract We compare the efficiency and social welfare properties of equilibria resulting from different governmental objectives in a federal system with a mobile population. The objectives considered are total utility, average utility, representative residents utility, and profit maximization. The representative resident approach is unique in that it depends only on utility. It yields the best efficient allocation from the perspective of a governments residents. Average utility yields an efficient allocation that non-residents prefer. Both the profit-maximizing and total utility approaches may lead to inefficient allocations. We also show that the representative resident approach is socially preferred to a total utility approach.

Population mobility and capital tax competition

Abstract We introduce imperfect population mobility to the capital tax competition literature. We study the efficiency of different tax regimes by comparing Nash equilibrium allocations to those that are constrained efficient. We conclude that decentralized control of taxes on locally employed capital is undesirable from an efficiency perspective. In addition we show that with population mobility a decentralized jurisdiction may be able to offset the externalities generated by capital tax competition, with the result that Nash equilibria can be efficient. We prove that this occurs in environments where one jurisdiction makes a positive transfer of resources to the other to control immigration.

Redistribution within and across the Regions of a Federation

The authors reconsider the literature on redistribution within a federation with mobile agents. They conclude that redistribution is a function best assigned to the national government; local governments with diverse preferences for redistribution distort individual migration decisions. The authors also examine the fiscal externality literature, which has made an efficiency argument for interregional transfers. They show that, if local governments have the same preferences for redistribution, the Nash equilibrium is efficient. If preferences are diverse, the authors show that nationally imposed interregional transfers do not address the source of the inefficiency. Nevertheless, interregional transfers are shown to be a part of decentralized behavior.

Immigration Control and the Welfare State

We examine immigration policy and its redistributive effects using a model of a rich country which must spend on border control in order to regulate immigration from a poor country. There are owners and workers in the rich country, and a public sector whi ch makes redistributive transfers from owners to workers. We first consider the case where illegal immigrants have access to the public sector, a situation currently observed in many countries. We show that as border control becomes more expensive inequal ity in the rich country increases, redistributive transfers may increase or decrease, some immigration is permitted and foreign aid may be used by the rich country in order to reduce the migration pressure along its border with the poor country. Because of nonconvexities, we also show that a small decrease in the aversion to inequality or a small increase in the poor countrys population can lead to the collapse of the redistributive public sector. We then consider excluding illegal immigrants from the pu blic sector (e.g. California Proposition 187). We find that the possibility of collapse vanishes and that the rich country takes the toughest official stance on immigration but does not enforce it with border controls.

Efficient Nash equilibria in a federal economy with migration costs

We consider a federation of two regions populated by identical individuals, in which interregional migration is costly. We define a federation as an economy in which migration may not be restricted by governments. We compare and contrast first-best efficiency (with migration controls) and federal efficiency (without migration controls). We show that first-best efficiency requires maximising total product net of migration cost, while federal efficiency does not. We also show that migration costs may lead to a discontinuous federal utility-possibility frontier and to discontinuous regional reaction functions. We establish that decentralised equilibrium allocations may not be first-best efficient but are federally efficient. We conclude by tying together well-understood results from the limiting cases of free mobility and immobility with our results for the intermediate case.

Economic versus political symmetry and the welfare concern with market integration and tax competition

Abstract The paper studies the implications of increased capital market integration and the associated increased tax competition for world welfare. We consider a population with heterogeneous endowments of capital in a model of redistributive politics. We show that if countries have the same average capital endowments but differ with respect to the endowments of their decisive majority, autarky may be socially preferred to integration under any aversion to inequality. We then reverse the conclusion by assuming that the decisive majority has the same endowment but countries differ in their average capital endowments. In proving these results we show that integration may decrease world output and increase the utility of the poorest members of the economy.

Towards a Better System for Immigration Control

We study different methods of immigration control using a simple model of a congested world. Our main comparison involves quota, the predominant instrument of immigration control, and a proposed system of immigration tolls and emigration subsidies. We show that the equilibrium of the proposed system is Pareto superior to the quota system. This is consistent with the tolls and subsidies creating a market for international migrants. When countries are price-takers the market becomes perfect and the exploitation of gains from trade complete. From a normative perspective, an open-borders policy is preferred to both control methods but will meet political opposition because it hurts the residents of the rich country.

Rational Truth-Avoidance and Self-Esteem

We assume that people have beliefs about their abilities, that these generate self-esteem, and that self-esteem is valued intrinsically. Individuals face two choices; one of which strictly dominates the other in a pecuniary sense, but necessarily involves gathering information concerning ones (unobserved) ability. We lay out the circumstances under which an individual may find it rational to reject the dominant choice; an act which, in social psychology is described as avoiding the situation, but which we label truth-avoidance. We find that the incentive to avoid the truth is increasing in income and decreasing in self-esteem, the perceived accuracy of ones self-assessment, and the role which luck plays in generating opportunities.