Paul Pecorino

Tax structure and growth in a model with human capital

Abstract The effect of the tax structure on the long-run growth rate of income and consumption is analyzed, where tax structure refers to the mix of taxes on physical and human capital which satisfy an exogenously given government budget constraint. The factor used intensively in the consumption good sector, relative to the capital goods sector as a whole, is taxed more highly in a growth-maximizing tax structure. An endogenous labor supply, the tax treatment of depreciation and the effect of replacing the income tax with a consumption tax are all considered.

Legal expenditure as a rent-seeking game*

Legal expenditures at a civil trial constitute an interesting type of rent-seeking contest. In civil litigation there is a natural interaction between the objective merits of the case and the outcome of the contest. Institutions such as fee shifting do not generally have a counterpart in other rent-seeking contests. The endogenous decision to participate in the rent-seeking contest corresponds to the decision by the plaintiff to bring a case, and the decision by the defendant to defend it. The desirability of fee shifting is very sensitive to the value of the parameter which describes the legal technology.

The effect of group size on public good provision in a repeated game setting

Abstract The ability to cooperate in the provision of a pubic good is analyzed in a repeated game. Holding the level of provision fixed, with quasi-linear utility we find that the critical value of the discount parameter converges to 0 in the limit. Thus, cooperation is feasible in a large market. Next, we allow the level cooperation to be adjusted optimally as the group size increases, both for a specific form of quasi-linear utility and for Cobb–Douglas utility. In each case, we find that there are admissible values of the discount parameter such that cooperation may be maintained in the limit.

Should the US allow prescription drug reimports from Canada

As a result of public outrage over lower prescription drug prices in Canada, Congress passed legislation that would allow these drugs to be imported into the US. The lower Canadian prices reflect price regulation. Opponents of allowing these imports have argued that the US will import Canadian price controls and that profits of pharmaceutical companies will be hurt. In this paper, a model is developed in which a good sold in the foreign country is subject to a negotiated price which is determined in a Nash bargaining game. When imports back into the home country are allowed, this negotiated price also becomes the domestic price. This causes the home firm to make fewer price concession in the Nash bargaining game. Home firm profits are found to rise under the reimport regime for both of the demand functions analyzed in this paper.

Tax Rates and Tax Revenues in a Model of Growth Through Human Capital Accumulation

Abstract The relationship between tax rates and the present value of tax collections is analyzed in an endogenous growth setting in which growth is driven by the accumulation of human capital. In such a model, income taxation may reduce the size of the tax base in current and future periods through both labor supply and growth rate effects. Under the benchmark parameterization of the model, the growth-reducing effects of taxation are found to have a moderate, but significant effect in lowering the revenue-maximizing rate of taxation relative to a static model.

Bargaining and Information: An Empirical Analysis of a Multistage Arbitration Game

We conduct an experimental analysis of final offer arbitration (FOA) with differentially informed players. Under FOA, the arbitrator must choose one of the two submitted offers. In our control, the uninformed player makes an offer to the informed player prior to the submission of offers to the arbitrator. The treatment allows negotiation after offers are submitted to the arbitrator. Because these offers are potentially binding, they may transmit privately held information and, thereby, lower the dispute rate. We find that allowing negotiation in the face of potentially binding offers lowers the dispute rate by 27 percentage points.

The Causes of Bargaining Failure: Evidence from Major League Baseball

Abstract Final‐offer arbitration in Major League Baseball provides an ideal setting for examining the empirical regularities that are associated with bargaining failure, since final offers, salaries, and player statistics, which provide the fundamental facts for the case, are all readily available. Using data for players eligible for arbitration for 1990–93, we conduct a wide variety of empirical tests regarding the relationship between aggressive offers and arbitration outcomes. We find that aggressive offers by players trigger arbitration and that more aggressive offers are associated with inferior financial outcomes in arbitration. Overall, clubs appear to outperform players in arbitration. Unexpectedly high or low offers are less common for players who have previously been through arbitration, which suggests that learning occurs. Our results are inconsistent with simple one‐sided asymmetric‐information models of arbitration. The results are more consistent with an optimism model or a model in which so...

The Use of Final Offer Arbitration as a Screening Device

Arbitration outcomes are uncertain. When risk preferences are unobservable, players may make offers that attempt to extract the willingness of risk-averse bargaining partners to pay to avoid the uncertainties of arbitration. When such a “hard” offer is made to a risk-neutral bargaining partner, it will be refused and arbitration will result. This is true even when the distribution of outcomes is common knowledge. Importantly, risk preferences may be difficult to communicate, even if it is in the interest of both parties to do so.

Civil Litigation with Mandatory Discovery and Voluntary Transmission of Private Information

Abstract We consider models of pretrial negotiations where both costly voluntary disclosure and costly mandatory discovery are possible. When the uninformed party makes the final offer (the screening game), mandatory discovery will be utilized if it is not very costly, but voluntary disclosure will not occur in the absence of a discovery procedure. When the informed party makes the final offer (the signaling game), mandatory discovery is never utilized, but voluntary disclosure will be utilized if it is not too costly to do so. Thus, mandatory discovery is effective in the information structure under which voluntary disclosure is not and vice versa. The results suggest that, taken together, the two institutions will lead to a great deal of information revelation and will significantly increase the probability of settlement.

Is the Coach Paid too Much? Coaching Salaries and the NCAA Cartel

Recently, a great deal of controversy has been generated from the salaries earned by head coaches in the NCAA. Although many figures in the world of sports earn high salaries, one important difference in the case of the NCAA is that the players do not get paid. We develop a model that shows that a cartel agreement to not pay the players raises the coachs salary if some players choose where to play based on the identity of the coach. The agreement not to pay the players improves competitive balance in the baseline model, but this result does not generalize.