Louis L. Wilde

Corruption in tax administration

Abstract We extend the game-theoretic model of Graetz, Reinganum and Wilde (1986) to allow for corruption in tax administration. In the presence of corruption audit rates are generally higher than in its absence. In fact, in the presence of corruption it is possible to sustain equilibria in which all returns are audited. Moreover, when some auditors accept bribes it is possible for increases in the fine rate or the tax rate to reduce expected government revenue.

Criminal Choice, Nonmonetary Sanctions, and Marginal Deterrence: A Normative Analysis

This paper develops a normative model of optimal sanctions in the Becker Tradition which emphasizes the role of marginal deterrence. The paper complements Shavells 1987 American Economic Review paper, the essential difference being that Shavells model concentrates on variations in the sanction imposed within a single category of acts (a specific crime) while the model in this paper concentrates on variations in the sanction imposed across categories of acts (different crimes). In their most general formulations, neither Shavells model nor the model developed in this paper yields the result that acts with greater social harm should receive greater sanctions. But special cases, which readers may or may not find reasonable, do yield that result, within crimes for both models and across crimes in the model developed in this paper. This paper also identifies the necessary condition of jointness in the cost of law enforcement in the case of comparisons across crimes.

Labor market equilibrium under nonsequential search

Abstract This study presents a full model of the labor market under imperfect information. Workers bear the burden of search and are assumed to use a stochastic variant of an optimal sample size search strategy. The existence and uniqueness of a nondegenerate equilibrium distribution of wage offers is established. Infficiencies which lead to underinvestment in search are uncovered and analyzed.

An Analysis of Conjunctive Choice: Theory and Experiments

This paper develops a theoretical framework in which the conjunctive choice rule can be analyzed and reports on a set of laboratory experiments designed to test that theory. Initially the conjunctive choice rule is formulated as a constrained optimization problem. The solution to this problem is then used to identify simpler versions of the rule that require less computational sophistication. In experiments designed to test this theory, all subject pools conformed to a particular simplified conjunctive rule.

The Demand for Tax Return Preparation Services

The authors analyze taxpayer choices of return preparation services. They distinguish between two types of nonpaid preparers, six types of paid third parties, and self-preparation. Among other things, the authors find significant differences in the factors that explain the demand for paid third parties who are and are not able to represent clients before the IRS. Among these factors are increases in IRS audit rates and the frequency of IRS penalties. Coauthors are Michael J. Graetz, Michael A. Udell, and Louis L. Wilde. Copyright 1992 by MIT Press.

Product Quality and Imperfect Information

This paper considers markets in which consumers are imperfectly informed about both product prices and quality levels offered by firms. We characterize necessary and sufficient conditions for existence of the various equilibrium configurations of price and quality that can arise in two paradigm cases; when all consumers prefer higher quality and when all consumers prefer lower quality. Our results suggest that firms will exploit imperfect information by charging noncompetitive prices as well as by offering other than ideal quality in the former case, but only by changing noncompetitive prices in the latter case.

State Income Tax Amnesties: Causes

This paper analyzes empirically for the years 1980-1988 the factors that led states with state income taxes to run tax amnesty programs. We find that the potential yield from an amnesty is more important than the fiscal status of a state. Furthermore, we estimate that if the 1RS audit rate had remained constant during the 1980–1988 period (instead of falling by almost one half), then the cumulative probability that an average state would have had a tax amnesty by 1988 would have fallen by just over 25 percent.

Imperfect Information in Markets for Contract Terms: The Examples of Warranties and Security Interests

The existence of imperfect information is thought to provide firms with incentives to degrade contract quality by supplying terms that well-informed consumers would refuse. We show, in contrast, that these incentives are weaker than is commonly supposed; rather, when consumers gather relatively little information, the profit maximizing strategy for firms is likely to involve offering the contract terms that consumers prefer, but at supracompetitive prices. In consequence, a standard state response to imperfect information problems, regulating the substantive terms of transactions, is often misplaced. When imperfect information exists, the state instead should reduce the costs to consumers of comparison shopping for contract terms, because such shopping reduces prices and also reduces further the incentive of firms to degrade contract quality.

Consumer choice and information: New experimental evidence

Many laws and regulations aimed at safeguarding consumers deal with the amount and kind of product information that consumers receive. Implicit in these regulations is the belief that consumers can make use of the appropriate information, provided only that it is made available. Recently a number of authors have argued that consumer decisionmaking is subject to consistent biases, suggesting poor purchase decisions may result even with access to the relevant information. Indeed some critics have argued that consumers may be subject to information overload so that they may make worse decisions with extra information than without it. The experimental results presented in this paper address some of these issues. The results suggest that untrained people can use simplifying strategies in quite complicated decision problems. Also, while information overload clearly can occur, the subjects in our experiments appeared able to ignore unnecessary or unwanted information.

A Generalized Model of Pricing for Homogeneous Goods under Imperfect Information

This paper generalizes the model developed in Wilde and Schwartz (1979) to allow downward sloping demand curves and u-shaped average cost curves. It shows that the basic qualitative conclusions of Wilde and Schwartz still hold. Moreover, it shows that the critical proportion of comparison shoppers needed to generate a competitive equilibrium falls as demand becomes more elastic or average costs become more inelastic. Finally, it shows that when imperfect information generates non-competitive outcomes, they are bounded below, in welfare terms, by the monopolistically competitive equilibrium.