Gregory A. Trandel

A Pareto comparison of ad valorem and unit taxes in noncompetitive environments

Abstract A literature that began with Wicksell (1896) has shown that an ad valorem tax is welfare superior to an equal-yield unit tax in both monopoly and oligopoly markets. This paper proves a stronger result: for any unit tax imposed on a monopoly, there exists an ad valorem tax that Pareto dominates it — that produces larger profit, tax revenue, and consumer surplus. The paper then considers whether this Pareto result generalizes to all Cournot–Nash oligopolies. The paper shows that Pareto dominance holds in such markets whenever the tax level exceeds a critical value that depends on various market parameters.

Interstate commodity tax differentials and the distribution of residents

Abstract This paper considers the manner in which an unequal distribution of consumers affects the commodity tax policies of neighboring jurisdictions. The paper uses a spatial model in which the residents of two states are distributed non-uniformly and employs a variety of assumptions about the behavior of governments and firms. Throughout, the paper shows that, at a Nash equilibrium in tax levels, the sparsely-populated state imposes a lower tax than does its densely-populated neighbor. The paper also demonstrates how equilibrium state taxes differ depending on whether firms employ marginal-cost or profit-maximizing pricing.

The relation between a university's football record and the size of its applicant pool

We show that the winning record of a universitys football team is positively (and statistically significant) related to the number of the applications for admittance received by that university. Our parameter estimates indicate that an increase in winning percentage from .500 to .750 tends to produce a 1.4% increase in applicants in the following year.

Tax evasion and the size of the underground economy

Abstract The theoretical literature on the relationship between the tax system and the ‘underground’ economy is extended using a model similar to the one examined by Watson (Journal of Public Economics, 1985, 27, 231–246), in which tax evasion is possible in one sector of the economy, but is impossible in the other. We prove that a rise in the tax rate increases (decreases) the number of agents in the sector in which tax evasion is possible if preferences exhibit increasing (decreasing) relative risk aversion. We also use our model to investigate the relationship between the tax rate and the total amount of tax evaded.

Adjusting Winning-Percentage Standard Deviations and a Measure of Competitive Balance for Home Advantage

One measure of sports league competitive balance uses a ratio: the standard deviation of team winning percentages is divided by the so-called ideal standard deviation, which assumes a game between evenly-skilled teams is equally likely to be won by either team. In fact, a team is more likely to win when playing at home than when playing on the road. The extent of this advantage differs across sports leagues. Home advantage reduces the variability of season-long team records. Ignoring home advantage biases upward the traditionally measured ideal standard deviation and bias downward the ratio of standard deviations. The authors derive a balanced league standard deviation formula that accounts for home advantage, use it to recompute the ratio of standard deviations for major sports leagues, and consider how the adjustment affects comparisons of competitive balance across those leagues.

Comparing Specific and Ad Vaslorem Pigouvian Taxes and Output Quotas

When the production or use of a good creates an external cost, an unregulated market produces a socially-inefficient quantity of output. One remedy for this inefficiency is to impose a Pigouvian tax equal to the marginal external damage associated with the good. In many circumstances, privately optimizing agents facing a Pigouvian tax make decisions that are consistent with the maximization of social welfare.

Hit by Pitches

It is commonly believed that baseball teams retaliate when one of their batters is hit by a pitch. In fact, Major League Baseball (MLB) has legislated to discourage this behavior. Previous analysts have disagreed about whether retaliation is likely directed at the offending pitcher or at one of his teammates; this distinction matters when considering impacts on pitcher behavior. This paper notes that when season-long hit-by-pitch totals—the data used to date — are disaggregated by team, they reveal no evidence of either formof retaliation. These researching this topic may need to develop new data sources.

Using a TV Game Show to Explain the Concept of a Dominant Strategy

An introduction to game theory is now a standard part of the undergraduate economics curriculum. To the best of my knowledge, all current intermediate microeconomics textbooks contain a discussion of game theory, as do the vast majority of introductory texts. One concept important to basic game theory is that of a dominant strategy. A game player has a dominant strategy when one of the actions available to him or her always leaves the player better off (or at least no worse off) than would any of the other possible actions, no matter what decisions are made by the other player(s) in the game. An informal survey of microeconomics textbooks shows how regularly the concept of a dominant strategy appears. I checked 9 intermediate textbooks (with copyright dates of 1994 or later), and every one of them defines and discusses a dominant strategy. In addition, 20 out of 25 introductory textbooks (with the same copyright dates) either explicitly define the term (14 cases) or clearly describe the characteristics.

A Spatial Model with Discrete Policy Choices That May Not Match: The Case of Regulatory Competition

We study the dynamics of policy diffusion when a first-moving jurisdiction that legalizes an activity reduces the probability of legalization in nearby later-acting jurisdictions. If a jurisdictions firms can sell to neighboring residents, but if the good is competitively sold at every location, then policies converge: all jurisdictions legalize or all jurisdictions ban. If firms have some market power, and if the location of firms depends on the order of legalization, an early-adopting government may legalize, but an otherwise identical, but later-acting, neighboring government might not. This possible asymmetry is due to state dependence resulting from the initial distribution of firms following the first-movers legalization. Empirically, counties that legalize the sale of fireworks first have more firework vendors just inside their border than counties that legalize later. Furthermore, counties have a longer duration to legalize fireworks if nearby counties have already adopted. State dependence resulting from a first-mover advantage contributes to the policy divergence of regulatory policies.